e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
|
|
þ |
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2011
|
|
|
o |
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File No. 0-28274
Sykes Enterprises, Incorporated
(Exact name of Registrant as specified in its charter)
|
|
|
Florida
|
|
56-1383460 |
(State or other jurisdiction of incorporation or organization)
|
|
(IRS Employer Identification No.) |
|
|
|
400 North Ashley Drive, Suite 2800, Tampa, FL
|
|
33602 |
(Address of principal executive offices)
|
|
(Zip Code) |
Registrants telephone number, including area code: (813) 274-1000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for at least the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of accelerated filer,
large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one):
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer þ
|
|
Non-accelerated filer o
(Do not check if a smaller reporting company)
|
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of
April 29, 2011, there were 47,027,866 outstanding shares of common stock.
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
INDEX
2
PART I. FINANCIAL INFORMATION
|
|
|
Item 1. |
|
Financial Statements |
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
(in thousands, except per share data) |
|
March 31, 2011 |
|
|
December 31, 2010 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
199,901 |
|
|
$ |
189,829 |
|
Receivables, net |
|
|
258,122 |
|
|
|
248,842 |
|
Prepaid expenses |
|
|
14,495 |
|
|
|
10,704 |
|
Other current assets |
|
|
21,923 |
|
|
|
22,913 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
494,441 |
|
|
|
472,288 |
|
Property and equipment, net |
|
|
106,386 |
|
|
|
113,703 |
|
Goodwill |
|
|
124,190 |
|
|
|
122,303 |
|
Intangibles, net |
|
|
51,161 |
|
|
|
52,752 |
|
Deferred charges and other assets |
|
|
35,506 |
|
|
|
33,554 |
|
|
|
|
|
|
|
|
|
|
$ |
811,684 |
|
|
$ |
794,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
24,690 |
|
|
$ |
30,635 |
|
Accrued employee compensation and benefits |
|
|
76,312 |
|
|
|
65,267 |
|
Current deferred income tax liabilities |
|
|
3,339 |
|
|
|
3,347 |
|
Income taxes payable |
|
|
2,387 |
|
|
|
2,605 |
|
Deferred revenue |
|
|
31,235 |
|
|
|
31,255 |
|
Other accrued expenses and current liabilities |
|
|
25,560 |
|
|
|
25,621 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
163,523 |
|
|
|
158,730 |
|
Deferred grants |
|
|
9,935 |
|
|
|
10,807 |
|
Long-term income tax liabilities |
|
|
27,736 |
|
|
|
28,876 |
|
Other long-term liabilities |
|
|
13,027 |
|
|
|
12,992 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
214,221 |
|
|
|
211,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and loss contingency (Note 15) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 10,000 shares
authorized; no shares issued and outstanding |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 200,000 shares authorized;
47,030 and 47,066 shares issued, respectively |
|
|
471 |
|
|
|
471 |
|
Additional paid-in capital |
|
|
301,223 |
|
|
|
302,911 |
|
Retained earnings |
|
|
275,745 |
|
|
|
265,676 |
|
Accumulated other comprehensive income |
|
|
21,118 |
|
|
|
15,108 |
|
Treasury stock at cost: 88 shares and 81 shares, respectively |
|
|
(1,094 |
) |
|
|
(971 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
597,463 |
|
|
|
583,195 |
|
|
|
|
|
|
|
|
|
|
$ |
811,684 |
|
|
$ |
794,600 |
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
3
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands, except per share data) |
|
2011 |
|
|
2010 |
|
Revenues |
|
$ |
310,156 |
|
|
$ |
266,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Direct salaries and related costs |
|
|
203,689 |
|
|
|
171,650 |
|
General and administrative |
|
|
90,375 |
|
|
|
100,023 |
|
Impairment of long-lived assets |
|
|
726 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
294,790 |
|
|
|
271,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
15,366 |
|
|
|
(5,091 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest income |
|
|
287 |
|
|
|
232 |
|
Interest (expense) |
|
|
(407 |
) |
|
|
(2,346 |
) |
Other (expense) |
|
|
(1,495 |
) |
|
|
(1,429 |
) |
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(1,615 |
) |
|
|
(3,543 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes |
|
|
13,751 |
|
|
|
(8,634 |
) |
Income taxes |
|
|
573 |
|
|
|
(467 |
) |
|
|
|
|
|
|
|
Income (loss) from continuing operations, net of taxes |
|
|
13,178 |
|
|
|
(8,167 |
) |
Loss from discontinued operations, net of taxes |
|
|
|
|
|
|
(1,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
13,178 |
|
|
$ |
(9,513 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share: |
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.28 |
|
|
$ |
(0.18 |
) |
Discontinued operations |
|
|
|
|
|
|
(0.03 |
) |
|
|
|
|
|
|
|
Net income (loss) per common share |
|
$ |
0.28 |
|
|
$ |
(0.21 |
) |
|
|
|
|
|
|
|
Diluted: |
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.28 |
|
|
$ |
(0.18 |
) |
Discontinued operations |
|
|
|
|
|
|
(0.03 |
) |
|
|
|
|
|
|
|
Net income (loss) per common share |
|
$ |
0.28 |
|
|
$ |
(0.21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares: |
|
|
|
|
|
|
|
|
Basic |
|
|
46,409 |
|
|
|
44,590 |
|
Diluted |
|
|
46,577 |
|
|
|
44,766 |
|
See accompanying notes to condensed consolidated financial statements.
4
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders Equity
Three Months Ended March 31, 2010,
Nine Months Ended December 31, 2010 and
Three Months Ended March 31, 2011
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
|
|
(in thousands) |
|
Issued |
|
|
Amount |
|
|
Capital |
|
|
Earnings |
|
|
Income (Loss) |
|
|
Stock |
|
|
Total |
|
|
|
|
Balance at January 1, 2010 |
|
|
41,817 |
|
|
$ |
418 |
|
|
$ |
166,514 |
|
|
$ |
280,399 |
|
|
$ |
7,819 |
|
|
$ |
(4,476 |
) |
|
$ |
450,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
1,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,793 |
|
Excess tax benefit from stock-
based compensation |
|
|
|
|
|
|
|
|
|
|
354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
354 |
|
Issuance of common stock and
restricted stock under equity award
plans |
|
|
176 |
|
|
|
1 |
|
|
|
(1,152 |
) |
|
|
|
|
|
|
|
|
|
|
(105 |
) |
|
|
(1,256 |
) |
Issuance of common stock for
business acquisition |
|
|
5,601 |
|
|
|
57 |
|
|
|
136,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,673 |
|
Comprehensive (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,513 |
) |
|
|
(1,144 |
) |
|
|
|
|
|
|
(10,657 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010 |
|
|
47,594 |
|
|
|
476 |
|
|
|
304,125 |
|
|
|
270,886 |
|
|
|
6,675 |
|
|
|
(4,581 |
) |
|
|
577,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
2 |
|
|
|
|
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
3,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,142 |
|
Issuance of common stock and
restricted stock under equity award
plans |
|
|
28 |
|
|
|
1 |
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
(96 |
) |
|
|
(26 |
) |
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,212 |
) |
|
|
(5,212 |
) |
Retirement of treasury stock |
|
|
(558 |
) |
|
|
(6 |
) |
|
|
(4,462 |
) |
|
|
(4,450 |
) |
|
|
|
|
|
|
8,918 |
|
|
|
|
|
Comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(760 |
) |
|
|
8,433 |
|
|
|
|
|
|
|
7,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
47,066 |
|
|
|
471 |
|
|
|
302,911 |
|
|
|
265,676 |
|
|
|
15,108 |
|
|
|
(971 |
) |
|
|
583,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
1,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,750 |
|
Excess tax benefit from stock-
based compensation |
|
|
|
|
|
|
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
Issuance of common stock and
restricted stock under equity award
plans |
|
|
264 |
|
|
|
3 |
|
|
|
(1,070 |
) |
|
|
|
|
|
|
|
|
|
|
(123 |
) |
|
|
(1,190 |
) |
Repurchase of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,512 |
) |
|
|
(5,512 |
) |
Retirement of treasury stock |
|
|
(300 |
) |
|
|
(3 |
) |
|
|
(2,400 |
) |
|
|
(3,109 |
) |
|
|
|
|
|
|
5,512 |
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,178 |
|
|
|
6,010 |
|
|
|
|
|
|
|
19,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011 |
|
|
47,030 |
|
|
$ |
471 |
|
|
$ |
301,223 |
|
|
$ |
275,745 |
|
|
$ |
21,118 |
|
|
$ |
(1,094 |
) |
|
$ |
597,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
5
Sykes Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2011 and 2010
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2011 |
|
|
2010 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
13,178 |
|
|
$ |
(9,513 |
) |
Adjustments to reconcile net income (loss) to net cash provided by (used
for) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization, net |
|
|
14,232 |
|
|
|
12,763 |
|
Impairment losses |
|
|
726 |
|
|
|
|
|
Unrealized foreign currency transaction (gains), net |
|
|
(1,439 |
) |
|
|
(904 |
) |
Stock-based compensation expense |
|
|
1,750 |
|
|
|
1,793 |
|
Excess tax benefit from stock-based compensation |
|
|
(32 |
) |
|
|
(354 |
) |
Deferred income tax provision (benefit) |
|
|
113 |
|
|
|
(4,864 |
) |
Net loss on disposal of property and equipment |
|
|
150 |
|
|
|
59 |
|
Bad debt expense |
|
|
51 |
|
|
|
12 |
|
Unrealized losses on financial instruments, net |
|
|
1,750 |
|
|
|
922 |
|
Amortization of deferred loan fees |
|
|
146 |
|
|
|
955 |
|
Other |
|
|
522 |
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities, net of acquisition: |
|
|
|
|
|
|
|
|
Receivables |
|
|
(3,738 |
) |
|
|
(2,472 |
) |
Prepaid expenses |
|
|
(3,444 |
) |
|
|
(3,693 |
) |
Other current assets |
|
|
(382 |
) |
|
|
(7,809 |
) |
Deferred charges and other assets |
|
|
(13 |
) |
|
|
(2 |
) |
Accounts payable |
|
|
(5,909 |
) |
|
|
(2,845 |
) |
Income taxes receivable / payable |
|
|
(3,437 |
) |
|
|
(233 |
) |
Accrued employee compensation and benefits |
|
|
9,728 |
|
|
|
(1,668 |
) |
Other accrued expenses and current liabilities |
|
|
(2,609 |
) |
|
|
272 |
|
Deferred revenue |
|
|
(807 |
) |
|
|
(924 |
) |
Other long-term liabilities |
|
|
(507 |
) |
|
|
1,537 |
|
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities |
|
|
20,029 |
|
|
|
(16,800 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(6,175 |
) |
|
|
(6,128 |
) |
Cash paid for business acquisition, net of cash acquired |
|
|
|
|
|
|
(77,174 |
) |
Proceeds from sale of property and equipment |
|
|
9 |
|
|
|
41 |
|
Investment in restricted cash |
|
|
(6 |
) |
|
|
(107 |
) |
Release of restricted cash |
|
|
|
|
|
|
80,000 |
|
|
|
|
|
|
|
|
Net cash (used for) investing activities |
|
|
(6,172 |
) |
|
|
(3,368 |
) |
|
|
|
|
|
|
|
6
Sykes
Enterprises, Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2011 and 2010
(Unaudited)
(continued)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2011 |
|
|
2010 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of long term debt |
|
|
|
|
|
|
75,000 |
|
Proceeds from issuance of stock |
|
|
|
|
|
|
26 |
|
Excess tax benefit from stock-based compensation |
|
|
32 |
|
|
|
354 |
|
Cash paid for repurchase of common stock |
|
|
(5,512 |
) |
|
|
|
|
Proceeds from grants |
|
|
|
|
|
|
12 |
|
Payments on short-term debt |
|
|
|
|
|
|
(85,000 |
) |
Shares repurchased for minimum tax withholding on equity awards |
|
|
(1,190 |
) |
|
|
(1,282 |
) |
Cash paid for loan fees related to debt |
|
|
|
|
|
|
(3,035 |
) |
|
|
|
|
|
|
|
Net cash (used for) financing activities |
|
|
(6,670 |
) |
|
|
(13,925 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rates on cash |
|
|
2,885 |
|
|
|
(3,075 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
10,072 |
|
|
|
(37,168 |
) |
Cash and cash equivalents beginning |
|
|
189,829 |
|
|
|
279,853 |
|
|
|
|
|
|
|
|
Cash and cash equivalents ending |
|
$ |
199,901 |
|
|
$ |
242,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during period for interest |
|
$ |
261 |
|
|
$ |
1,092 |
|
Cash paid during period for income taxes |
|
$ |
6,821 |
|
|
$ |
6,745 |
|
|
|
|
|
|
|
|
|
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
Property and equipment additions in accounts payable |
|
$ |
1,690 |
|
|
$ |
690 |
|
Unrealized gain on postretirement obligation in accumulated other
comprehensive income (loss) |
|
$ |
17 |
|
|
$ |
298 |
|
Issuance of common stock for business acquisition |
|
$ |
|
|
|
$ |
136,673 |
|
See accompanying notes to condensed consolidated financial statements.
7
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business The Sykes Enterprises, Incorporated and consolidated subsidiaries (SYKES or the
Company) provides outsourced customer contact management solutions and services in the business
process outsourcing arena to companies, primarily within the communications, financial services,
technology/consumer, transportation and leisure, healthcare and other industries. SYKES provides
flexible, high-quality outsourced customer contact management services (with an emphasis on inbound
technical support and customer service), which includes customer assistance, healthcare and
roadside assistance, technical support and product sales to its clients customers. Utilizing
SYKES integrated onshore/offshore global delivery model, SYKES provides its services through
multiple communication channels encompassing phone, e-mail, Internet, text messaging and chat.
SYKES complements its outsourced customer contact management services with various enterprise
support services in the United States that encompass services for a companys internal support
operations, from technical staffing services to outsourced corporate help desk services. In Europe,
SYKES also provides fulfillment services including multilingual sales order processing via the
Internet and phone, payment processing, inventory control, product delivery and product returns
handling. The Company has operations in two reportable segments entitled (1) the Americas, which
includes the United States, Canada, Latin America, India and the Asia Pacific Rim, in which the
client base is primarily companies in the United States that are using the Companys services to
support their customer management needs; and (2) EMEA, which includes Europe, the Middle East and
Africa.
On February 2, 2010, the Company completed the acquisition of ICT Group, Inc., pursuant to the
Agreement and Plan of Merger, dated October 5, 2009. The Company has reflected the operating
results in the Condensed Consolidated Statements of Operations since February 2, 2010. See Note 2,
Acquisition of ICT, for additional information on the acquisition of this business.
In December 2010, the Company sold its Argentine operations, pursuant to stock purchase agreements,
dated December 16, 2010 and December 29, 2010. The Company reflected the operating results related
to the Argentine operations as discontinued operations in the Condensed Consolidated Statement of
Operations for the three months ended March 31, 2010. Cash flows from discontinued operations are
included in the Condensed Consolidated Statement of Cash Flows for the three months ended March 31,
2010. See Note 3, Discontinued Operations, for additional information on the sale of the Argentine
operations.
Basis of Presentation The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of
America (generally accepted accounting principles) for interim financial information, the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2011 are not necessarily indicative of the results
that may be expected for any future quarters or the year ending December 31, 2011. For further
information, refer to the consolidated financial statements and notes thereto, included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the
Securities and Exchange Commission (SEC). Subsequent events or transactions have been evaluated
through the date and time of issuance of the condensed consolidated financial statements. There
were no material subsequent events that required recognition or disclosure in the Condensed
Consolidated Financial Statements.
Principles of Consolidation The condensed consolidated financial statements include the accounts
of SYKES and its wholly-owned subsidiaries and controlled majority-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in consolidation.
Recognition of Revenue Revenue is recognized in accordance with the Financial Accounting
Standards Boards Accounting Standards Codification (ASC) 605 Revenue Recognition. The Company
primarily recognizes its
revenues from services as those services are performed, which is based on either a per minute, per
hour, per call or
8
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Recognition of Revenue (continued)
per transaction basis, under a fully executed contractual agreement and records
reductions to revenues for contractual penalties and holdbacks for failure to meet specified
minimum service levels and other performance based contingencies. Revenue recognition is limited to
the amount that is not contingent upon delivery of any future product or service or meeting other
specified performance conditions. Product sales, accounted for within fulfillment services, are
recognized upon shipment to the customer and satisfaction of all obligations.
In accordance with ASC 605-25 (ASC 605-25), Revenue Recognition Multiple-Element
Arrangements, revenue from contracts with multiple-deliverables is allocated to separate units of
accounting based on their relative fair value, if the deliverables in the contract(s) meet the
criteria for such treatment. Certain fulfillment services contracts contain multiple-deliverables.
Separation criteria includes whether a delivered item has value to the customer on a stand-alone
basis, whether there is objective and reliable evidence of the fair value of the undelivered items
and, if the arrangement includes a general right of return related to a delivered item, whether
delivery of the undelivered item is considered probable and in the Companys control. Fair value is
the price of a deliverable when it is regularly sold on a stand-alone basis, which generally
consists of vendor-specific objective evidence of fair value. If there is no evidence of the fair
value for a delivered product or service, revenue is allocated first to the fair value of the
undelivered product or service and then the residual revenue is allocated to the delivered product
or service. If there is no evidence of the fair value for an undelivered product or service, the
contract(s) is accounted for as a single unit of accounting, resulting in delay of revenue
recognition for the delivered product or service until the undelivered product or service portion
of the contract is complete. The Company recognizes revenue for delivered elements only when the
fair values of undelivered elements are known, uncertainties regarding client acceptance are
resolved, and there are no client-negotiated refund or return rights affecting the revenue
recognized for delivered elements. Once the Company determines the allocation of revenues between
deliverable elements, there are no further changes in the revenue allocation. If the separation
criteria are met, revenues from these services is recognized as the services are performed under a
fully executed contractual agreement. If the separation criteria are not met because there is
insufficient evidence to determine fair value of one of the deliverables, all of the services are
accounted for as a single combined unit of accounting. For these deliverables with insufficient
evidence to determine fair value, revenue is recognized on the proportional performance method
using the straight-line basis over the contract period, or the actual number of operational seats
used to serve the client, as appropriate. As of March 31, 2011, the Companys fulfillment
contracts with multiple-deliverables met the separation criteria as outlined in ASC 605-25 and the
revenue was accounted for accordingly. The Company has no other contracts that contain
multiple-deliverables as of March 31, 2011.
In October 2009, the Financial Accounting Standards Board amended the accounting standards for
certain multiple-deliverable revenue arrangements. The Company adopted this guidance on a
prospective basis for applicable transactions originated or materially modified since January 1,
2011, the adoption date. Since there were no such transactions executed or materially modified
since adoption on January 1, 2011, there was no impact on the Companys financial condition,
results of operations and cash flows. The amended standard:
|
|
|
updates guidance on whether multiple deliverables exist, how the deliverables in an
arrangement should be separated, and how the consideration should be allocated; |
|
|
|
|
requires an entity to allocate revenue in an arrangement using the best estimated
selling price of deliverables if a vendor does not have vendor-specific objective evidence
of selling price or third-party evidence of selling price; and |
|
|
|
|
eliminates the use of the residual method and requires an entity to allocate revenue
using the relative selling price method. |
Goodwill The Company accounts for goodwill and other intangible assets under ASC 350 (ASC 350)
Intangibles Goodwill and Other. The Company expects to receive future benefits from previously
acquired goodwill over an indefinite period of time. Goodwill and other intangible assets with
indefinite lives are not subject to amortization, but instead must be reviewed at least annually,
and more frequently in the presence of certain circumstances, for impairment by applying a fair
value based test. Fair value for goodwill is based on discounted cash flows, market multiples
and/or appraised values, as appropriate, and an analysis of our market capitalization. Under ASC
350, the carrying value of assets is calculated at the reporting unit. If the fair value of the
reporting unit is less than its carrying value, goodwill is considered impaired and an impairment
loss is recorded to the extent that the fair value of the goodwill within the reporting unit is
less than its carrying value. As of March 31, 2011, there were no indications of impairment, as
outlined in ASC 350. The Company expects to receive future benefits from previously acquired
goodwill over an indefinite period of time.
9
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Intangible Assets Intangible assets, primarily customer relationships, trade names, existing
technologies and covenants not to compete, are amortized using the straight-line method over their
estimated useful lives which approximate the pattern in which the economic benefits of the assets
are consumed. The Company periodically evaluates the recoverability of intangible assets and takes
into account events or changes in circumstances that warrant revised estimates of useful lives or
that indicate that impairment exists. Fair value for intangible assets is based on discounted cash
flows, market multiples and/or appraised values as appropriate. The Company does not have
intangible assets with indefinite lives. As of March 31, 2011, there were no indications of
impairment, as outlined by ASC 350.
Income Taxes The Company accounts for income taxes under ASC 740 (ASC 740) Income Taxes
which requires recognition of deferred tax assets and liabilities to reflect tax consequences of
differences between the tax bases of assets and liabilities and their reported amounts in the
accompanying Consolidated Financial Statements. Deferred tax assets are reduced by a valuation
allowance if, based on the weight of available evidence, both positive and negative, for each
respective tax jurisdiction, it is more likely than not that the deferred tax assets will not be
realized in accordance with the criteria of ASC 740. Valuation allowances are established against
deferred tax assets due to an uncertainty of realization. Valuation allowances are reviewed each
period on a tax jurisdiction by tax jurisdiction basis to analyze whether there is sufficient
positive or negative evidence, in accordance with criteria of ASC 740, to support a change in
judgment about the realizability of the related deferred tax assets. Uncertainties regarding
expected future income in certain jurisdictions could affect the realization of deferred tax assets
in those jurisdictions.
The Company evaluates tax positions that have been taken or are expected to be taken in its tax
returns, and records a liability for uncertain tax positions in accordance with ASC 740. ASC 740
contains a two-step approach to recognizing and measuring uncertain tax positions. First, tax
positions are recognized if the weight of available evidence indicates that it is more likely than
not that the position will be sustained upon examination, including resolution of related appeals
or litigation processes, if any. Second, the tax position is measured as the largest amount of tax
benefit that has a greater than 50% likelihood of being realized upon settlement. The Company
recognizes interest and penalties related to unrecognized tax benefits in the provision for income
taxes in the accompanying Condensed Consolidated Financial Statements.
Self-Insurance Programs The Company self-insures for certain levels of workers compensation and
as of January 1, 2011, began self-funding the medical, prescription drug and dental benefit plans
in the United States. Estimated costs of this self-insurance program are accrued at the projected
settlements for known and anticipated claims. As of March 31, 2011 and December 31, 2010,
self-insurance liabilities of $1.6 million and $0.1 million, respectively, are included in Accrued
employee compensation and benefits, and $0.1 million and $0.1 million, respectively, are included
in Other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets.
Deferred Grants Recognition of income associated with grants for land and the acquisition of
property, buildings and equipment is deferred until after the completion and occupancy of the
building and title has passed to the Company, and the funds have been released from escrow. The
deferred amounts for both land and building are amortized and recognized as a reduction of
depreciation expense included within general and administrative costs over the corresponding useful
lives of the related assets. Amounts received in excess of the cost of the building are allocated
to the cost of equipment and, only after the grants are released from escrow, recognized as a
reduction of depreciation expense over the weighted average useful life of the related equipment,
which approximates five years. As of March 31, 2011 and December 31, 2010, property deferred grants
totaled $8.9 million and $9.8 million, respectively. Amortization of the deferred grants that is
included as a reduction to General and administrative costs in the accompanying Condensed
Consolidated Statements of Operations was approximately $0.3 million and $0.3 million for the three
months ended March 31, 2011 and 2010, respectively. Upon sale of the related facilities, any
deferred grant balance is recognized in full and is included in the gain on sale of property and
equipment.
The Company receives government employment grants, primarily in the U.S., Ireland and Canada, as an
incentive to create and maintain permanent employment positions for a specified time period. The
grants are repayable, under certain terms and conditions, if the Companys relevant employment
levels do not meet or exceed the employment levels set forth in the grant agreements. Accordingly,
grant monies received are deferred and amortized using the proportionate performance model over the
required employment period. As of March 31, 2011 and December 31, 2010, deferred employment grants
totaled $2.7 million, of which $1.7 million is included in total current liabilities,
and $2.7 million, of which $1.7 million is included in total current liabilities, respectively.
Amortization of these
10
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Deferred Grants (continued)
grants, recorded as a reduction to General and administrative costs in the
accompanying Condensed Consolidated Statements of Operations, was not material for the three months
ended March 31, 2011 and 2010.
Stock-Based Compensation The Company has four stock-based compensation plans: the 2001 Equity
Incentive Plan (for employees and certain non-employees), the 2011 Equity Incentive Plan (for
employees and certain non-employees) which is subject to approval by the shareholders at the
Companys 2011 Annual Meeting of Shareholders (Annual Meeting), the 2004 Non-Employee Director
Fee Plan (for non-employee directors), both approved by the shareholders, and the Deferred
Compensation Plan (for certain eligible employees). All of these plans are discussed more fully in
Note 17, Stock-Based Compensation. Stock-based awards under these plans may consist of common
stock, common stock units, stock options, cash-settled or stock-settled stock appreciation rights,
restricted stock and other stock-based awards. The Company issues common stock and treasury stock
to satisfy stock option exercises or vesting of stock awards.
In accordance with ASC 718 (ASC 718) Compensation Stock Compensation, the Company recognizes
in its Consolidated Statements of Operations the grant-date fair value of stock options and other
equity-based compensation issued to employees and directors. Compensation expense for equity-based
awards is recognized over the requisite service period, usually the vesting period, while
compensation expense for liability-based awards (those usually settled in cash rather than stock)
is re-measured to fair value at each balance sheet date until the awards are settled.
Fair Value of Financial Instruments The following methods and assumptions were used to estimate
the fair value of each class of financial instruments for which it is practicable to estimate that
value:
|
|
|
Cash, Short-Term and Other Investments, Investments Held in Rabbi Trusts and Accounts
Payable. The carrying values for cash, short-term and other investments, investments held
in rabbi trusts and accounts payable approximate their fair values. |
|
|
|
|
Forward Currency Forward Contracts and Options. Forward currency forward contracts and
options, including premiums paid on options, are recognized at fair value based on quoted
market prices of comparable instruments or, if none are available, on pricing models or
formulas using current market and model assumptions, including adjustments for credit risk. |
Fair Value Measurements A description of the Companys policies regarding fair value measurement,
in accordance with the provisions of ASC 820 (ASC 820) Fair Value Measurements and Disclosures,
is summarized below.
Fair Value Hierarchy ASC 820-10-35 requires disclosure about how fair value is
determined for assets and liabilities and establishes a hierarchy for which these assets and
liabilities must be grouped, based on significant levels of observable or unobservable inputs.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs
reflect the Companys market assumptions. This hierarchy requires the use of observable market data
when available. These two types of inputs have created the following fair value hierarchy:
|
|
|
Level 1 Quoted prices for identical instruments in active markets. |
|
|
|
|
Level 2 Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are
not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. |
|
|
|
|
Level 3 Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Determination of Fair Value The Company generally uses quoted market prices (unadjusted)
in active markets for identical assets or liabilities that the Company has the ability to access to
determine fair value, and classifies such items in Level 1. Fair values determined by Level 2
inputs utilize inputs other than quoted market prices included in Level 1 that are observable for
the asset or liability, either directly or indirectly. Level 2 inputs include quoted market prices
in active markets for similar assets or liabilities, and inputs other than quoted market prices
that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the
asset or liability, and include situations where there is little, if any, market activity for the
asset or liability.
11
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Fair Value Measurements (continued)
If quoted market prices are not available, fair value is based upon internally developed valuation
techniques that use, where possible, current market-based or independently sourced market
parameters, such as interest rates, currency rates, etc. Assets or liabilities valued using such
internally generated valuation techniques are classified according to the lowest level input or
value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even
though there may be some significant inputs that are readily observable.
The following section describes the valuation methodologies used by the Company to measure fair
value, including an indication of the level in the fair value hierarchy in which each asset or
liability is generally classified.
Money
Market and Open-End Mutual Funds The Company uses quoted market prices in active
markets to determine the fair value of money market and open-end mutual funds, which are classified
in Level 1 of the fair value hierarchy.
Foreign
Currency Forward Contracts and Options The Company enters into foreign currency
forward contracts and options over the counter and values such contracts using quoted market prices
of comparable instruments or, if none are available, on pricing models or formulas using current
market and model assumptions, including adjustments for credit risk. The key inputs include forward
or option foreign currency exchange rates and interest rates. These items are classified in Level 2
of the fair value hierarchy.
Investments
Held in Rabbi Trusts The investment assets of the rabbi trusts are valued
using quoted market prices in active markets, which are classified in Level 1 of the fair value
hierarchy. For additional information about the deferred compensation plan, refer to Note 9,
Investments Held in Rabbi Trusts, and Note 17, Stock-Based Compensation.
Guaranteed
Investment Certificates Guaranteed investment certificates, with variable
interest rates linked to the prime rate, approximate fair value due to the automatic ability to
re-price with changes in the market; such items are classified in Level 2 of the fair value
hierarchy.
ASC 825 (ASC 825) Financial Instruments permits an entity to measure certain financial assets
and financial liabilities at fair value with changes in fair value recognized in earnings each
period. The Company has not elected to use the fair value option permitted under ASC 825 for any of
its financial assets and financial liabilities that are not already recorded at fair value.
Foreign Currency Translation The assets and liabilities of the Companys foreign subsidiaries,
whose functional currency is other than the U.S. Dollar, are translated at the exchange rates in
effect on the reporting date, and income and expenses are translated at the weighted average
exchange rate during the period. The net effect of translation gains and losses is not included in
determining net income, but is included in Accumulated other comprehensive income (loss)
(AOCI), which is reflected as a separate component of shareholders equity until the sale or
until the complete or substantially complete liquidation of the net investment in the foreign
subsidiary. Foreign currency transactional gains and losses are included in Other income
(expense) in the accompanying Condensed Consolidated Statements of Operations.
Foreign Currency and Derivative Instruments The Company accounts for financial derivative
instruments under ASC 815 (ASC 815) Derivatives and Hedging. The Company generally utilizes
non-deliverable forward contracts and options expiring within one to 24 months to reduce its
foreign currency exposure due to exchange rate fluctuations on forecasted cash flows denominated in
non-functional foreign currencies and net investments in foreign operations. In using derivative
financial instruments to hedge exposures to changes in exchange rates, the Company exposes itself
to counterparty credit risk.
The Company designates derivatives as either (1) a hedge of a forecasted transaction or of the
variability of cash flows to be received or paid related to a recognized asset or liability (cash
flow hedge); (2) a hedge of a net investment in a foreign operation; or (3) a derivative that does
not qualify for hedge accounting. To qualify for hedge accounting treatment, a derivative must be
highly effective in mitigating the designated risk of the hedged item. Effectiveness of the hedge
is formally assessed at inception and throughout the life of the hedging relationship. Even if a
derivative qualifies for hedge accounting treatment, there may be an element of ineffectiveness of
the hedge.
12
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 1. Business, Basis of Presentation and Summary of Significant Accounting Policies (continued)
Foreign Currency and Derivative Instruments (continued)
Changes in the fair value of derivatives that are highly effective and designated as cash flow
hedges are recorded in AOCI, until the forecasted underlying transactions occur. Any realized gains
or losses resulting from the cash flow hedges are recognized together with the hedged transaction
within Revenues. Changes in the fair value of derivatives that are highly effective and
designated as a net investment hedge are recorded in cumulative translation adjustment in AOCI,
offsetting the change in cumulative translation adjustment attributable to the hedged portion of
the Companys net investment in the foreign operation. Any unrealized gains and losses from
settlements of the net investment hedge remain in AOCI until partial or complete liquidation of the
net investment. Ineffectiveness is measured based on the change in fair value of the forward
contracts and options and the fair value of the hypothetical derivatives with terms that match the
critical terms of the risk being hedged. Hedge ineffectiveness is recognized within Revenues for
cash flow hedges and within Other income (expense) for net investment hedges. Cash flows from the
derivative contracts are classified within the operating section in the accompanying Condensed
Consolidated Statements of Cash Flows.
The Company formally documents all relationships between hedging instruments and hedged items, as
well as its risk management objective and strategy for undertaking various hedging activities. This
process includes linking all derivatives that are designated as cash flow hedges to forecasted
transactions. Hedges of a net investment in a foreign operation are linked to the specific foreign
operation. The Company also formally assesses, both at the hedges inception and on an ongoing
basis, whether the derivatives that are used in hedging transactions are highly effective on a
prospective and retrospective basis. When it is determined that a derivative is not highly
effective as a hedge or that it has ceased to be a highly effective hedge or if a forecasted hedge
is no longer probable of occurring, the Company discontinues hedge accounting prospectively. At
March 31, 2011 and December 31, 2010, all hedges were determined to be highly effective.
The Company also periodically enters into forward contracts that are not designated as hedges as
defined under ASC 815. The purpose of these derivative instruments is to reduce the effects from
fluctuations caused by volatility in currency exchange rates on the Companys operating results and
cash flows. All changes in the fair value of the derivative instruments are included in Other
income (expense). See Note 8, Financial Derivatives, for further information on financial
derivative instruments.
New Accounting Standards There are no recently issued accounting standards that are expected to have a material effect on
the Companys financial condition, results of operations or cash flows.
Note 2. Acquisition of ICT
On February 2, 2010, the Company acquired 100% of the outstanding common shares and voting interest
of ICT through a merger of ICT with and into a subsidiary of the Company. ICT provides outsourced
customer management and business process outsourcing solutions with its operations located in the
United States, Canada, Europe, Latin America, India, Australia and the Philippines. The results of
ICTs operations have been included in the Companys Condensed Consolidated Financial Statements
since its acquisition on February 2, 2010. The Company acquired ICT to expand and complement its
global footprint, provide entry into additional vertical markets, and increase revenues to enhance
its ability to leverage the Companys infrastructure to produce improved sustainable operating
margins. This resulted in the Company paying a substantial premium for ICT resulting in
recognition of goodwill.
The acquisition date fair value of the consideration transferred totaled $277.8 million, which
consisted of the following (in thousands):
|
|
|
|
|
|
|
Total |
|
Cash |
|
$ |
141,161 |
|
Common stock |
|
|
136,673 |
|
|
|
|
|
|
|
$ |
277,834 |
|
|
|
|
|
The fair value of the 5.6 million common shares issued was determined based on the Companys
closing share price of $24.40 on the acquisition date.
13
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 2. Acquisition of ICT (continued)
The cash portion of the acquisition was funded through borrowings consisting of a $75 million
short-term loan from KeyBank and a $75 million Term Loan, which were paid off in March 2010 and
July 2010, respectively. See Note 11, Borrowings, for further information.
The Company accounted for the acquisition in accordance with ASC 805 Business Combinations,
whereby the purchase price paid was allocated to the tangible and identifiable intangible assets
acquired and liabilities assumed from ICT based on their estimated fair values as of the closing
date. The Company finalized its purchase price allocation during the quarter ended December 31,
2010. The following table summarizes the estimated acquisition date fair values of the assets
acquired and liabilities assumed, the measurement period adjustments that occurred during the
quarter ended December 31, 2010 and the final purchase price allocation as of February 2, 2010 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2010 |
|
|
Measurement |
|
|
February 2, 2010 |
|
|
|
(As initially |
|
|
Period |
|
|
(As |
|
|
|
reported) |
|
|
Adjustments |
|
|
adjusted) |
|
|
Cash and cash equivalents |
|
$ |
63,987 |
|
|
$ |
|
|
|
$ |
63,987 |
|
Receivables |
|
|
75,890 |
|
|
|
|
|
|
|
75,890 |
|
Income tax receivable |
|
|
2,844 |
|
|
|
(1,941 |
) |
|
|
903 |
|
Prepaid expenses |
|
|
4,846 |
|
|
|
|
|
|
|
4,846 |
|
Other current assets |
|
|
4,950 |
|
|
|
149 |
|
|
|
5,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
152,517 |
|
|
|
(1,792 |
) |
|
|
150,725 |
|
Property and equipment |
|
|
57,910 |
|
|
|
|
|
|
|
57,910 |
|
Goodwill |
|
|
90,123 |
|
|
|
7,647 |
|
|
|
97,770 |
|
Intangibles |
|
|
60,310 |
|
|
|
|
|
|
|
60,310 |
|
Deferred charges and other assets |
|
|
7,978 |
|
|
|
(3,965 |
) |
|
|
4,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
|
(10,000 |
) |
|
|
|
|
|
|
(10,000 |
) |
Accounts payable |
|
|
(12,412 |
) |
|
|
(168 |
) |
|
|
(12,580 |
) |
Accrued employee compensation and benefits |
|
|
(23,873 |
) |
|
|
(1,309 |
) |
|
|
(25,182 |
) |
Income taxes payable |
|
|
(2,451 |
) |
|
|
2,013 |
|
|
|
(438 |
) |
Other accrued expenses and current liabilities |
|
|
(10,951 |
) |
|
|
(464 |
) |
|
|
(11,415 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(59,687 |
) |
|
|
72 |
|
|
|
(59,615 |
) |
Deferred grants |
|
|
(706 |
) |
|
|
|
|
|
|
(706 |
) |
Long-term income tax liabilities |
|
|
(5,573 |
) |
|
|
(19,924 |
) |
|
|
(25,497 |
) |
Other long-term liabilities (1) |
|
|
(25,038 |
) |
|
|
17,962 |
|
|
|
(7,076 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
277,834 |
|
|
$ |
|
|
|
$ |
277,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes primarily long-term deferred tax liabilities. |
The above fair values of assets acquired and liabilities assumed were based on the information that
was available as of the acquisition date to estimate the fair value of assets acquired and
liabilities assumed. The measurement period adjustments relate primarily to unrecognized tax
benefits and related offsets, tax liabilities relating to the determination as of the date of the
ICT acquisition that the Company intended to distribute a majority of the accumulated and
undistributed earnings of the ICT Philippine subsidiary and its direct parent, ICT Group
Netherlands B.V. to SYKES, its ultimate U.S. parent, and certain accrual adjustments related to
labor and benefit costs in Argentina. The measurement period adjustments were completed as of
December 31, 2010.
The $97.8 million of goodwill was assigned to the Companys Americas and EMEA operating segments in
the amount of $97.7 million and $0.1 million, respectively. The goodwill recognized is
attributable primarily to synergies the Company expects to achieve as the acquisition increases the
opportunity for sustained long-term operating margin expansion by leveraging general and
administrative expenses over a larger revenue base. Pursuant to federal income tax regulations,
the ICT acquisition was considered to be a non-taxable transaction; therefore, no amount of
intangibles or goodwill from this acquisition will be deductible for tax purposes. The fair value
of
14
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 2. Acquisition of ICT (continued)
receivables acquired is $75.9 million, with the gross contractual amount being $76.4 million, of
which $0.5 million was not expected to be collected.
Total net assets acquired (liabilities assumed) by operating segment as of February 2, 2010, the
acquisition date, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
|
EMEA |
|
|
Other |
|
|
Consolidated |
|
Net assets (liabilities) |
|
$ |
278,703 |
|
|
$ |
(869 |
) |
|
$ |
|
|
|
$ |
277,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair values are based on managements estimates and assumptions including variations of the income
approach, the cost approach and the market approach. The following table presents the Companys
purchased intangibles assets as of February 2, 2010, the acquisition date (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Amortization |
|
|
|
Amount Assigned |
|
|
Period (years) |
|
|
Customer relationships |
|
$ |
57,900 |
|
|
|
8 |
|
Trade name |
|
|
1,000 |
|
|
|
3 |
|
Proprietary software |
|
|
850 |
|
|
|
2 |
|
Non-compete agreements |
|
|
560 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
$ |
60,310 |
|
|
|
8 |
|
|
|
|
|
|
|
|
After the ICT acquisition in February, 2010, the Company paid off the $10.0 million outstanding
balance plus accrued interest of the ICT short-term debt assumed upon acquisition. The related
interest expense included in Interest expense in the accompanying Condensed Consolidated
Statement of Operations for the three months ended March 31, 2010 was not material.
The Companys Condensed Consolidated Statement of Operations for the three months ended March 31,
2010 includes ICT revenues of $63.7 million and the ICT net loss of $(13.4) million from the
February 2, 2010 acquisition date through March 31, 2010.
The following table presents the unaudited pro forma combined revenues and net earnings as if ICT
had been included in the consolidated results of the Company for the three months ended March 31,
2010. The pro forma financial information is not indicative of the results of operations that
would have been achieved if the acquisition and related borrowings had taken place on January 1,
2010 (in thousands):
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, 2010 |
Revenues |
|
$ |
306,710 |
|
Income from continuing operations, net of taxes |
|
$ |
11,803 |
|
Income from continuing operations per common share: |
|
|
|
|
Basic |
|
$ |
0.25 |
|
Diluted |
|
$ |
0.25 |
|
These amounts have been calculated to reflect the additional depreciation, amortization, and
interest expense that would have been incurred assuming the fair value adjustments and borrowings
occurred on January 1, 2010, together with the consequential tax effects. In addition, these
amounts exclude costs incurred which are directly attributable to the acquisition, and which do not
have a continuing impact on the combined companies operating results. Included in these costs are
severance, advisory and legal costs, net of the consequential tax effects.
15
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 2. Acquisition of ICT (continued)
The following table presents acquisition-related costs included in General and administrative
costs in the accompanying Condensed Consolidated Statements of Operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Severance costs: |
|
|
|
|
|
|
|
|
Americas |
|
$ |
|
|
|
$ |
850 |
|
Corporate |
|
|
126 |
|
|
|
12,596 |
|
|
|
|
|
|
|
|
|
|
|
126 |
|
|
|
13,446 |
|
|
|
|
|
|
|
|
|
|
Lease termination and other costs: (1) |
|
|
|
|
|
|
|
|
Americas |
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction and integration costs: |
|
|
|
|
|
|
|
|
Corporate |
|
|
13 |
|
|
|
7,654 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
|
|
7,654 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: (2) |
|
|
|
|
|
|
|
|
Americas |
|
|
3,058 |
|
|
|
2,153 |
|
EMEA |
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
3,058 |
|
|
|
2,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total acquisition-related costs |
|
$ |
3,417 |
|
|
$ |
23,259 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts related to the Third Quarter 2010 Exit Plan. See Note 5. |
|
(2) |
|
Additional depreciation resulted from the increase in fair values
of the acquired property and equipment and amortization of the fair values of the
acquired intangibles. |
Note 3. Discontinued Operations
In December 2010, the Board of Directors of SYKES, upon the recommendation of its Finance
Committee, sold its Argentine operations, which were operated through two Argentine subsidiaries:
Centro Interaccion Multimedia S.A. (CIMSA) and ICT Services of Argentina, S.A. (ICT Argentina),
together the Argentine operations. CIMSA and ICT Argentina were offshore contact centers
providing contact center services through a total of three centers in Argentina to clients in the
United States and in the Republic of Argentina. The decision to exit Argentina was made due to
surging costs, primarily chronic wage increases, which dramatically reduced the appeal of the
Argentina footprint among the Companys existing and new global clients and thus the overall future
profitability of the Argentine operations. As these were stock transactions, the Company has no
future obligation with regard to the Argentine operations and there are no material post closing
obligations.
As a result of the sale of the Argentine operations, the operating results related to the Argentine
operations have been reflected as discontinued operations in the Condensed Consolidated Statement
of Operations for the three months ended March 31, 2010. This business was historically reported
by the Company as part of the Americas segment.
16
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 3. Discontinued Operations (continued)
The results of the Argentine operations included in discontinued operations were as follows (in
thousands):
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, 2010 |
|
Revenues |
|
$ |
8,635 |
|
|
|
|
|
|
|
|
|
|
(Loss) from discontinued operations before income taxes |
|
$ |
(1,346 |
) |
Income taxes (1) |
|
|
|
|
|
|
|
|
(Loss) from discontinued operations, net of taxes |
|
$ |
(1,346 |
) |
|
|
|
|
|
|
|
(1) |
|
There were no income taxes on the loss from discontinued
operations as any tax benefit from the losses would be offset by a
valuation allowance. |
Note 4. Assets Held for Sale
In March 2011, the Company classified long-lived assets, consisting of land and a building located
in Minot, North Dakota, as held for sale. These assets were classified as held for sale based on
the following: management committed to a plan to sell the assets, the assets are available for
immediate sale in their present condition, an active program to locate a buyer and other actions
required to complete the plan to sell the assets has been initiated, the assets are being actively
marketed for sale at a price that is reasonable in relation to their current fair value, it is
probable that the assets will be sold in a reasonable period of time, and it is unlikely that
significant changes to the plan to sell the assets will be made or that the plan will be withdrawn.
As of March 31, 2011, the assets held for sale have a carrying value of $0.8 million, which are
included in Other current assets in the accompanying Condensed Consolidated Balance Sheet. The
estimated fair value of these assets is in excess of their carrying value based on recent sales
prices of comparable properties. Related to these assets are deferred grants of $0.6 million as of
March 31, 2011, which are included in Other accrued expenses and deferred liabilities in the
accompanying Condensed Consolidated Balance Sheet. Upon reclassification as held for sale, the
Company discontinued depreciating these assets and amortizing the related deferred grants. As of
December 31, 2010, these assets, classified as held and used with a carrying value of $0.9 million,
are included in Property and equipment in the accompanying Condensed Consolidated Balance Sheet.
Related to these assets are deferred grants of $0.6 million as of December 31, 2010, which are
included in Deferred grants in the accompanying Condensed Consolidated Balance Sheet.
In February 2011, the Company received an offer to purchase the Minot assets for $4.1 million in
cash. The sale is expected to close in June 2011.
Note 5. Costs Associated with Exit or Disposal Activities
Third Quarter 2010 Exit Plan
During the quarter ended September 30, 2010, consistent with the Companys long-term goals to
manage and optimize capacity utilization, the Company closed or committed to close four customer
contact management centers in the Philippines and consolidated or committed to consolidate leased
space in our Wilmington, Delaware and Newtown, Pennsylvania locations (the Third Quarter 2010 Exit
Plan). These actions were in response to the facilities consolidation and capacity rationalization
related to the ICT acquisition, enabling the Company to reduce operating costs by eliminating
redundant space and to optimize capacity utilization rates where overlap exists. There are no
employees affected by the Third Quarter 2010 Exit Plan. These actions were substantially completed
by January 31, 2011.
The major costs incurred as a result of these actions are impairments of long-lived assets
(primarily leasehold improvements) and facility-related costs (primarily consisting of those costs
associated with the real estate leases)
estimated at $10.9 million as of March 31, 2011 ($10.0 million as of December 31, 2010), all of
which are in the Americas segment. This increase of $0.9 million during the quarter ended March 31,
2011 is primarily due to the change in assumptions related to the redeployment of property and
equipment and a lease early termination penalty. The Company recorded $3.8 million of the costs
associated with the Third Quarter 2010 Exit Plan as non-cash
17
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 5. Costs Associated with Exit or Disposal Activities (continued)
impairment charges, of which $0.7 million is included in Impairment of long-lived assets in the
accompanying Condensed Consolidated Statement of Operations for the three months ended March 31,
2011 (see Note 6, Fair Value, for further information). The remaining $7.1 million represents cash
expenditures for facility-related costs, primarily rent obligations to be paid through the
remainder of the lease terms, the last of which ends in February 2017. The Company has paid $1.5
million in cash through March 31, 2011 related to these facility-related costs.
The following table summarizes the 2011 accrued liability associated with the Third Quarter 2010
Exit Plans exit or disposal activities and related charges for the three months ended March 31,
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending |
|
|
|
|
|
|
|
|
|
|
|
|
Accrual at |
|
|
|
|
|
|
|
|
|
|
Other Non- |
|
|
Accrual at |
|
|
|
|
|
|
|
|
|
|
|
|
January 1, |
|
|
|
|
|
Cash |
|
|
Cash |
|
|
March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2011 Charges(1) |
|
|
Payments |
|
|
Changes |
|
|
2011 |
|
|
Short-term(2) |
|
|
Long-term(3) |
|
|
Total |
|
Lease obligations and facility
exit costs |
|
$ |
6,141 |
|
|
$ |
220 |
|
|
$ |
(742 |
) |
|
$ |
|
|
|
$ |
5,619 |
|
|
$ |
1,953 |
|
|
$ |
3,666 |
|
|
$ |
5,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the three months ended March 31, 2011, the Company recorded $0.2 million in
additional lease termination costs related to one of the Philippine customer contact management
centers, which is included in General and administrative costs in the accompanying Condensed
Consolidated Statement of Operations. |
|
(2) |
|
Included in Other accrued expenses and current liabilities in the
accompanying Condensed Consolidated Balance Sheet. |
|
(3) |
|
Included in Other long-term liabilities in the accompanying Condensed
Consolidated Balance Sheet. |
Fourth Quarter 2010 Exit Plan
During the quarter ended December 31, 2010, in furtherance of the Companys long-term goals to
manage and optimize capacity utilization, the Company committed to and closed a customer contact
management center in the United Kingdom and a customer contact management center in Ireland, both
components of the EMEA segment (the Fourth Quarter 2010 Exit Plan). These actions further enable
the Company to reduce operating costs by eliminating additional redundant space and to optimize
capacity utilization rates where overlap exists. These actions were substantially completed by
January 31, 2011. None of the revenues from the United Kingdom or Ireland facilities, which were
approximately $1.3 million on an annualized basis, were captured and migrated to other facilities
within the region. Loss from operations of the United Kingdom and Ireland are not material to the
consolidated income (loss) from continuing operations; therefore, their results of operations have
not been presented as discontinued operations in the accompanying Condensed Consolidated Statements
of Operations.
The major costs incurred as a result of these actions are facility-related costs (primarily
consisting of those costs associated with the real estate leases), impairments of long-lived assets
(primarily leasehold improvements and equipment) and severance-related costs totaling $2.2 million
as of March 31, 2011 ($2.1 million as of December 31, 2010). This increase of $0.1 million included
in General and administrative costs in the accompanying Condensed Consolidated Statement of
Operations during the three months ended March 31, 2011 is primarily due to the change in the
estimate of facility-related costs. The Company recorded $0.2 million of the costs associated with
the Fourth Quarter 2010 Exit Plan as non-cash impairment charges. Approximately $1.8 million
represents cash expenditures for facility-related costs, primarily rent obligations to be paid
through the remainder of the lease terms, the last of which ends in March 2014, and $0.2 million
represents cash expenditures for severance related costs. The Company has paid $0.6 million in cash
through March 31, 2011 of the facility-related and severance-related costs.
18
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 5. Costs Associated with Exit or Disposal Activities (continued)
The following table summarizes the 2011 accrued liability associated with the Fourth Quarter
2010 Exit Plans exit or disposal activities and related charges for the three months ended March
31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending |
|
|
|
|
|
|
|
|
|
|
|
|
Accrual at |
|
|
|
|
|
|
|
|
|
|
Other Non- |
|
|
Accrual at |
|
|
|
|
|
|
|
|
|
|
|
|
January 1, |
|
|
|
|
|
Cash |
|
|
Cash |
|
|
March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2011 Charges(1) |
|
|
Payments |
|
|
Changes(2) |
|
|
2011 |
|
|
Short-term(3) |
|
|
Long-term(4) |
|
|
Total |
|
Lease obligations and facility
exit costs |
|
$ |
1,711 |
|
|
$ |
70 |
|
|
$ |
(387 |
) |
|
$ |
58 |
|
|
$ |
1,452 |
|
|
$ |
567 |
|
|
$ |
885 |
|
|
$ |
1,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the three months ended March 31, 2011, the Company recorded $0.1 million in
additional lease termination costs related to the Ireland customer contact management center, which
is included in General and administrative costs in the accompanying Condensed Consolidated
Statement of Operations. |
|
(2) |
|
Effect of foreign currency translation. |
|
(3) |
|
Included in Other accrued expenses and current liabilities in the
accompanying Condensed Consolidated Balance Sheet. |
|
(4) |
|
Included in Other long-term liabilities in the accompanying Condensed Consolidated Balance Sheet. |
In accordance with the Companys 12 to 18 month integration timeline following the ICT
acquisition, the Company expects to continue to evaluate opportunities for further such actions
around facilities consolidation and capacity optimization.
ICT Restructuring Plan
As of February 2, 2010, the Company assumed the liabilities of ICT, including restructuring
accruals in connection with ICTs plans to reduce its overall cost structure and adapt to changing
economic conditions by closing various customer contact management centers in Europe and Canada
prior to the end of their existing lease terms (the ICT Restructuring Plan). These restructuring
accruals, which related to ongoing lease and other contractual obligations, are expected to be paid
by the end of December 2011.
The following table summarizes the 2011 accrued liability associated with the ICT Restructuring
Plans exit or disposal activities for the three months ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending |
|
|
|
|
|
|
|
|
|
|
|
|
Accrual at |
|
|
|
|
|
|
|
|
|
|
Other Non- |
|
|
Accrual at |
|
|
|
|
|
|
|
|
|
|
|
|
January 1, |
|
|
|
|
|
Cash |
|
|
Cash |
|
|
March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2011 Charges(1) |
|
|
Payments |
|
|
Changes(2) |
|
|
2011 |
|
|
Short-term(3) |
|
|
Long-term |
|
|
Total |
|
Lease obligations and facility
exit costs |
|
$ |
1,462 |
|
|
$ |
(262 |
) |
|
$ |
(426 |
) |
|
$ |
43 |
|
|
$ |
817 |
|
|
$ |
817 |
|
|
$ |
|
|
|
$ |
817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During the three months ended March 31, 2011, the Company reversed accruals related
to the final settlement of termination costs, which reduced General and administrative costs in the
accompanying Condensed Consolidated Statement of Operations. |
|
(2) |
|
Effect of foreign currency translation. |
|
(3) |
|
Included in Other accrued expenses and current liabilities in the accompanying
Condensed Consolidated Balance Sheet. |
19
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 6. Fair Value
The Companys assets and liabilities measured at fair value on a recurring basis as of March 31,
2011 subject to the requirements of ASC 820 consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2011 Using: |
|
|
|
|
|
|
|
Quoted Prices |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Markets For |
|
|
Observable |
|
|
Unobservable |
|
|
|
Balance at |
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
March 31, 2011 |
|
|
Level (1) |
|
|
Level (2) |
|
|
Level (3) |
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds and open-end
mutual funds (1) |
|
$ |
41,867 |
|
|
$ |
41,867 |
|
|
$ |
|
|
|
$ |
|
|
Foreign currency forward contracts (2) |
|
|
1,342 |
|
|
|
|
|
|
|
1,342 |
|
|
|
|
|
Foreign currency option contracts (2) |
|
|
3,682 |
|
|
|
|
|
|
|
3,682 |
|
|
|
|
|
Equity investments held in a rabbi trust
for the Deferred Compensation Plan (3) |
|
|
3,021 |
|
|
|
3,021 |
|
|
|
|
|
|
|
|
|
Debt investments held in a rabbi trust
for the Deferred Compensation Plan (3) |
|
|
889 |
|
|
|
889 |
|
|
|
|
|
|
|
|
|
Guaranteed investment certificates (4) |
|
|
58 |
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
50,859 |
|
|
$ |
45,777 |
|
|
$ |
5,082 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (5) |
|
$ |
1,742 |
|
|
$ |
|
|
|
$ |
1,742 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,742 |
|
|
$ |
|
|
|
$ |
1,742 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included $41.2 million in Cash and cash equivalents and $0.7 million in Deferred
charges and other assets in the accompanying Condensed Consolidated Balance Sheet. |
|
(2) |
|
Included in Other current assets in the accompanying Condensed
Consolidated Balance Sheet. See Note 8. |
|
(3) |
|
Included in Other current assets in the accompanying Condensed
Consolidated Balance Sheet. See Note 9. |
|
(4) |
|
Included in Deferred charges and other assets in the accompanying
Condensed Consolidated Balance Sheet. |
|
(5) |
|
Included in Other accrued expenses and current liabilities in the accompanying
Condensed Consolidated Balance Sheet. See Note 8. |
20
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 6. Fair Value (continued)
The Companys assets and liabilities measured at fair value on a recurring basis as of December 31,
2010 subject to the requirements of ASC 820 consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010 Using: |
|
|
|
|
|
|
|
Quoted Prices |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
Markets For |
|
|
Observable |
|
|
Unobservable |
|
|
|
Balance at |
|
|
Identical Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
December 31, 2010 |
|
|
Level (1) |
|
|
Level (2) |
|
|
Level (3) |
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds and open-end
mutual funds (1) |
|
$ |
6,640 |
|
|
$ |
6,640 |
|
|
$ |
|
|
|
$ |
|
|
Foreign currency forward contracts (2) |
|
|
1,283 |
|
|
|
|
|
|
|
1,283 |
|
|
|
|
|
Foreign currency option contracts (2) |
|
|
4,951 |
|
|
|
|
|
|
|
4,951 |
|
|
|
|
|
Equity investments held in a rabbi trust
for the Deferred Compensation Plan (3) |
|
|
2,647 |
|
|
|
2,647 |
|
|
|
|
|
|
|
|
|
Debt investments held in a rabbi trust
for the Deferred Compensation Plan (3) |
|
|
789 |
|
|
|
789 |
|
|
|
|
|
|
|
|
|
U.S. Treasury Bills held in a rabbi trust for the
former ICT chief executive officer (3) |
|
|
118 |
|
|
|
118 |
|
|
|
|
|
|
|
|
|
Guaranteed investment certificates (4) |
|
|
53 |
|
|
|
|
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,481 |
|
|
$ |
10,194 |
|
|
$ |
6,287 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts (5) |
|
$ |
735 |
|
|
$ |
|
|
|
$ |
735 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
735 |
|
|
$ |
|
|
|
$ |
735 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included $5.9 million in Cash and cash equivalents and $0.7 million in Deferred
charges and other assets in the accompanying Condensed Consolidated Balance Sheet. |
|
(2) |
|
Included in Other current assets in the accompanying Condensed
Consolidated Balance Sheet. See Note 8. |
|
(3) |
|
Included in Other current assets in the accompanying Condensed
Consolidated Balance Sheet. See Note 9. |
|
(4) |
|
Included in Deferred charges and other assets in the accompanying
Condensed Consolidated Balance Sheet. |
|
(5) |
|
Included in Other accrued expenses and current liabilities in the accompanying
Condensed Consolidated Balance Sheet. See Note 8. |
21
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 6. Fair Value (continued)
Certain assets, under certain conditions, are measured at fair value on a nonrecurring basis
utilizing Level 3 inputs as described in Note 1, Business, Basis of Presentation and Summary of
Significant Accounting Policies, like those associated with acquired businesses, including goodwill
and other intangible assets and other long-lived assets. For these assets, measurement at fair
value in periods subsequent to their initial recognition would be applicable if one or more of
these assets was determined to be impaired. The Companys assets measured at fair value on a
nonrecurring basis (no liabilities) as of March 31, 2011 subject to the requirements of ASC 820
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
Three Months |
|
|
|
|
|
|
|
Ended March 31, |
|
|
|
|
|
|
Ended March 31, |
|
|
|
Balance at |
|
|
2011 |
|
|
Balance at |
|
|
2010 |
|
|
|
March 31, |
|
|
Total Impairment |
|
|
December 31, |
|
|
Total Impairment |
|
|
|
2011 |
|
|
(Losses) |
|
|
2010 |
|
|
(Losses) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net (1) |
|
$ |
14,939 |
|
|
$ |
|
|
|
$ |
14,614 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net (1) |
|
|
91,447 |
|
|
|
(726 |
) |
|
|
99,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
106,386 |
|
|
$ |
(726 |
) |
|
$ |
113,703 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 1 for additional information regarding the fair value measurement. |
During the three months ended March 31, 2011 in connection with the Third Quarter 2010 Exit
Plan within the Americas segment, as discussed more fully in Note 5, Costs Associated with Exit or
Disposal Activities, the Company recorded an impairment charge of $0.7 million, resulting from a
change in assumptions related to the redeployment of property and equipment.
Note 7. Goodwill and Intangible Assets
The following table presents the Companys purchased intangible assets (in thousands) as of March
31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Amortization |
|
|
|
Intangibles |
|
|
Amortization |
|
|
Intangibles |
|
|
Period (years) |
|
|
|
|
Customer relationships |
|
$ |
58,999 |
|
|
$ |
(8,749 |
) |
|
$ |
50,250 |
|
|
|
8 |
|
Trade name |
|
|
1,000 |
|
|
|
(389 |
) |
|
|
611 |
|
|
|
3 |
|
Non-compete agreements |
|
|
560 |
|
|
|
(560 |
) |
|
|
|
|
|
|
1 |
|
Proprietary software |
|
|
850 |
|
|
|
(550 |
) |
|
|
300 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
61,409 |
|
|
$ |
(10,248 |
) |
|
$ |
51,161 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys purchased intangible assets (in thousands) as of
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Amortization |
|
|
|
Intangibles |
|
|
Amortization |
|
|
Intangibles |
|
|
Period (years) |
|
|
|
|
Customer relationships |
|
$ |
58,471 |
|
|
$ |
(6,839 |
) |
|
$ |
51,632 |
|
|
|
8 |
|
Trade name |
|
|
1,000 |
|
|
|
(306 |
) |
|
|
694 |
|
|
|
3 |
|
Non-compete agreements |
|
|
560 |
|
|
|
(513 |
) |
|
|
47 |
|
|
|
1 |
|
Proprietary software |
|
|
850 |
|
|
|
(471 |
) |
|
|
379 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
60,881 |
|
|
$ |
(8,129 |
) |
|
$ |
52,752 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense, related to the purchased intangible assets resulting from acquisitions
(other than goodwill), of
22
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 7. Goodwill and Intangible Assets (continued)
$2.0 million and $1.4 million for the three months ended March 31, 2011
and 2010, respectively, is included in General and administrative costs in the accompanying
Condensed Consolidated Statements of Operations.
The Companys estimated future amortization expense for the five succeeding years is as follows (in
thousands):
|
|
|
|
|
Years Ending December 31, |
|
Amount |
|
2011 (remaining nine months) |
|
$ |
5,947 |
|
2012 |
|
|
7,805 |
|
2013 |
|
|
7,407 |
|
2014 |
|
|
7,344 |
|
2015 |
|
|
7,342 |
|
2016 |
|
|
7,342 |
|
2017 and thereafter |
|
|
7,974 |
|
Changes in goodwill consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Gross |
|
|
Impairment |
|
|
|
|
|
|
Amount |
|
|
Losses |
|
|
Net Amount |
|
|
|
|
Americas: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011 |
|
$ |
122,932 |
|
|
$ |
(629 |
) |
|
$ |
122,303 |
|
Foreign currency translation |
|
|
1,887 |
|
|
|
|
|
|
|
1,887 |
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011 |
|
|
124,819 |
|
|
|
(629 |
) |
|
|
124,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2011 |
|
|
84 |
|
|
|
(84 |
) |
|
|
|
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011 |
|
|
84 |
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
124,903 |
|
|
$ |
(713 |
) |
|
$ |
124,190 |
|
|
|
|
|
|
|
|
|
|
|
Note 8. Financial Derivatives
Cash Flow Hedges The Company had derivative assets and liabilities relating to outstanding
forward contracts and options, designated as cash flow hedges, as defined under ASC 815, consisting
of Philippine peso (PHP) contracts, maturing within
12 months with a notional value of $96.7
million and $109.1 million as of March 31, 2011 and December 31, 2010, respectively, and Canadian
Dollar contracts maturing within 12 months with a notional value
of $5.4 million and $7.2 million
as of March 31, 2011 and December 31, 2010, respectively. These contracts are entered into to
protect against the risk that the eventual cash flows resulting from such transactions will be
adversely affected by changes in exchange rates.
The Company had a total of $1.5 million and $2.1 million of deferred gains, net of taxes of ($0.4)
million and $(0.5)
million, on these derivative instruments as of March 31, 2011 and December 31, 2010, respectively,
recorded in AOCI in the accompanying Condensed Consolidated Balance Sheets. The deferred gains
expected to be reclassified to Revenues from AOCI during the next twelve months is $5.0 million.
However, this amount and other future reclassifications from AOCI will fluctuate with movements in
the underlying market price of the forward contracts.
Net Investment Hedges During 2010, the Company entered into foreign exchange forward contracts
to hedge its net investment in a foreign operation, as defined under ASC 815, with an aggregate
notional value of $26.1 million. These hedges settled in 2010 and the Company recorded deferred
(losses) of $(2.6) million, net of taxes, for 2010 as a currency translation adjustment, a
component of AOCI, offsetting foreign exchange losses attributable to the translation of the net
investment. The Company did not hedge net investments in foreign operations during the three
months ended March 31, 2011.
Other Hedges The Company also periodically enters into foreign currency hedge contracts that are
not designated as hedges as defined under ASC 815. The purpose of these derivative instruments is
to protect our interests against adverse foreign currency moves pertaining to intercompany
receivables and payables, and other assets and liabilities
23
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 8. Financial Derivatives (continued)
Other Hedges (continued)
that are denominated in currencies other than our subsidiaries functional currencies. These
contracts generally do not exceed 90 days in duration.
The Company had the following outstanding foreign currency forward contracts and options (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011 |
|
|
As of December 31, 2010 |
|
|
|
Notional Amount |
|
|
Settle Through |
|
|
Notional Amount |
|
|
Settle Through |
|
Contract Type |
|
in USD |
|
|
Date |
|
|
in USD |
|
|
Date |
|
Cash flow hedge: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options |
|
$ |
75,700 |
|
|
December 2011 |
|
$ |
81,100 |
|
|
December 2011 |
Forwards |
|
$ |
26,400 |
|
|
December 2011 |
|
$ |
35,200 |
|
|
December 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not designated as hedge: (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forwards |
|
$ |
52,334 |
|
|
June 2011 |
|
$ |
57,791 |
|
|
February 2011 |
|
|
|
(1) |
|
Cash flow hedge as defined under ASC 815. Purpose is to protect against the risk
that eventual cash flows resulting from such transactions will be adversely affected by changes in
exchange rates. |
|
(2) |
|
Foreign currency hedge contract not designated as a hedge as defined under ASC 815.
Purpose is to reduce the effects on the
Companys operating results and cash flows from fluctuations caused by volatility in currency
exchange rates, primarily related to intercompany loan payments and cash held in non-functional
currencies. |
As of March 31, 2011, the maximum amount of loss due to credit risk that, based on the gross
fair value of the financial instruments, the Company would incur if parties to the financial
instruments that make up the concentration failed to perform according to the terms of the
contracts is $5.0 million.
24
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 8. Financial Derivatives (continued)
Other Hedges (continued)
The following tables present the fair value of the Companys derivative instruments as of
March 31, 2011 and December 31, 2010 included in the accompanying Condensed Consolidated Balance
Sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets |
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Balance Sheet |
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
Location |
|
Fair Value |
|
|
Location |
|
Fair Value |
|
Derivatives designated as cash
flow hedging instruments under
ASC 815: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
Other current assets |
|
$ |
1,341 |
|
|
Other current assets |
|
$ |
1,009 |
|
Foreign currency options |
|
Other current assets |
|
|
3,682 |
|
|
Other current assets |
|
|
4,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,023 |
|
|
|
|
|
5,960 |
|
Derivatives not designated as
hedging instruments under ASC
815: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
Other current assets |
|
|
1 |
|
|
Other current assets |
|
|
274 |
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative assets |
|
|
|
$ |
5,024 |
|
|
|
|
$ |
6,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities |
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Balance Sheet |
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
Location |
|
Fair Value |
|
|
Location |
|
Fair Value |
|
Derivatives designated as cash
flow hedging instruments under
ASC 815: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
Other accrued |
|
|
|
|
|
Other accrued |
|
|
|
|
|
|
expenses and |
|
|
|
|
|
expenses and |
|
|
|
|
|
|
current liabilities |
|
$ |
|
|
|
current liabilities |
|
$ |
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27 |
|
Derivatives not designated as
hedging instruments under ASC
815: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
Other accrued |
|
|
|
|
|
Other accrued |
|
|
|
|
|
|
expenses and |
|
|
|
|
|
expenses and |
|
|
|
|
|
|
current liabilities |
|
|
1,742 |
|
|
current liabilities |
|
|
708 |
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities |
|
|
|
$ |
1,742 |
|
|
|
|
$ |
735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 1 for additional information on the Companys purpose for entering into
derivatives not designated as hedging instruments and its overall risk management strategies. |
25
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 8. Financial Derivatives (continued)
Other Hedges (continued)
The following tables present the effect of the Companys derivative instruments for the three
months ended March 31, 2011 and 2010 in the accompanying Condensed Consolidated Financial
Statements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) |
|
|
Statement |
|
|
Gain (Loss) |
|
|
Gain (Loss) |
|
|
|
Recognized in AOCI |
|
|
of |
|
|
Reclassified From |
|
|
Recognized in Income |
|
|
|
on Derivatives |
|
|
Operations |
|
|
Accumulated AOCI |
|
|
on Derivatives |
|
|
|
(Effective Portion) |
|
|
Location |
|
|
Into Income |
|
|
(Ineffective Portion) |
|
|
|
March 31, |
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Derivatives designated as cash
flow hedging instruments under
ASC 815: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward
contracts |
|
$ |
378 |
|
|
$ |
1,195 |
|
|
Revenues |
|
$ |
34 |
|
|
$ |
892 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency option contracts |
|
|
(650 |
) |
|
|
150 |
|
|
Revenues |
|
|
498 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(272 |
) |
|
$ |
1,345 |
|
|
|
|
|
|
$ |
532 |
|
|
$ |
981 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized |
|
|
|
Statement of |
|
|
in Income on Derivatives |
|
|
|
Operations |
|
|
March 31, |
|
|
|
Location |
|
|
2011 |
|
|
2010 |
|
Derivatives not designated as hedging
instruments under ASC 815: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
Other income and |
|
|
|
|
|
|
|
|
|
|
(expense) |
|
$ |
(2,289 |
) |
|
$ |
(1,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
Note 9. Investments Held in Rabbi Trusts
The Companys investments held in rabbi trusts, classified as trading securities and included in
Other current assets in the accompanying Condensed Consolidated Balance Sheets, at fair value,
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
Mutual funds |
|
$ |
3,371 |
|
|
$ |
3,910 |
|
|
$ |
3,058 |
|
|
$ |
3,436 |
|
U.S. Treasury Bills (1) |
|
|
|
|
|
|
|
|
|
|
118 |
|
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,371 |
|
|
$ |
3,910 |
|
|
$ |
3,176 |
|
|
$ |
3,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Matured in January 2011. |
The mutual funds held in the rabbi trusts were 77% equity-based and 23% debt-based at March
31, 2011. Investment income, included in Other income (expense) in the accompanying Condensed
Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010 consists
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
Gross realized gains from sale of trading securities |
|
$ |
2 |
|
|
$ |
10 |
|
Gross realized losses from sale of trading securities |
|
|
|
|
|
|
(5 |
) |
Dividend and interest income |
|
|
5 |
|
|
|
6 |
|
Net unrealized holding gains |
|
|
154 |
|
|
|
113 |
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
161 |
|
|
$ |
124 |
|
|
|
|
|
|
|
|
26
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 10. Deferred Revenue
The components of deferred revenue consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
Future service |
|
$ |
23,578 |
|
|
$ |
23,919 |
|
Estimated potential penalties and holdbacks |
|
|
7,657 |
|
|
|
7,336 |
|
|
|
|
|
|
|
|
|
|
$ |
31,235 |
|
|
$ |
31,255 |
|
|
|
|
|
|
|
|
Note 11. Borrowings
The Company had no outstanding borrowings as of March 31, 2011 and December 31, 2010.
On February 2, 2010, the Company entered into a Credit Agreement (the Credit Agreement) with a
group of lenders and KeyBank National Association, as Lead Arranger, Sole Book Runner and
Administrative Agent (KeyBank). The Credit Agreement provides for a $75 million term loan (the
Term Loan) and a $75 million revolving credit facility, the amount which is subject to certain
borrowing limitations and includes certain customary financial and restrictive covenants. The
Company drew down the full $75 million Term Loan on February 2, 2010 in connection with the
acquisition of ICT on such date. See Note 2, Acquisition of ICT, for further information. During
the three months ended September 30, 2010, the Company paid off the remaining outstanding Term Loan
balance, earlier than the scheduled maturity, in the amount of $52.5 million, plus accrued
interest. The Term Loan is no longer available for borrowings.
The $75 million revolving credit facility provided under the Credit Agreement includes a $40
million multi-currency sub-facility, a $10 million swingline sub-facility and a $5 million letter
of credit sub-facility, which may be used for general corporate purposes including strategic
acquisitions, share repurchases, working capital support, and letters of credit, subject to certain
limitations. The Company is not currently aware of any inability of its lenders to provide access
to the full commitment of funds that exist under the revolving credit facility, if necessary.
However, there can be no assurance that such facility will be available to the Company, even though
it is a binding commitment of the financial institutions. The revolving credit facility will
mature on February 1, 2013.
Borrowings under the Credit Agreement bear interest at either LIBOR or the base rate plus, in each
case, an applicable margin based on the Companys leverage ratio. The applicable interest rate is
determined quarterly based on the Companys leverage ratio at such time. The base rate is a rate
per annum equal to the greatest of (i) the rate of interest established by KeyBank, from time to
time, as its prime rate; (ii) the Federal Funds effective rate in effect from time to time, plus
1/2 of 1% per annum; and (iii) the then-applicable LIBOR rate for one month interest periods, plus
1.00%. Swingline loans bear interest only at the base rate plus the base rate margin. In addition,
the Company is required to pay certain customary fees, including a commitment fee of up to 0.75%,
which is due quarterly in arrears and calculated on the average unused amount of the revolving
credit facility.
The Company paid an underwriting fee of $3.0 million for the Credit Agreement, which is deferred
and amortized over the term of the loan. The related interest expense and amortization of deferred
loan fees on the Credit Agreement of $0.3 million and $0.8 million are included in Interest
expense in the accompanying Condensed Consolidated Statements of Operations for the three months
ended March 31, 2011 and 2010, respectively. The $75 million Term Loan had a weighted average
interest rate of 3.95% for the three months ended March 31, 2010.
The Credit Agreement is guaranteed by all of the Companys existing and future direct and indirect
material U.S. subsidiaries and secured by a pledge of 100% of the non-voting and 65% of the voting
capital stock of all the direct foreign subsidiaries of the Company and those of the guarantors.
In December, 2009, Sykes (Bermuda) Holdings Limited, a Bermuda exempted company (Sykes Bermuda)
which is an indirect wholly-owned subsidiary of the Company, entered into a credit agreement with
KeyBank (the Bermuda Credit Agreement). The Bermuda Credit Agreement provided for a $75 million
short-term loan to Sykes Bermuda with a maturity date of March 31, 2010. Sykes Bermuda drew down
the full $75 million on December 11, 2009. The Bermuda Credit Agreement required that Sykes Bermuda
and its direct subsidiaries maintain cash and cash equivalents of at least $80 million at all
times. Interest was charged on outstanding amounts, at the option of Sykes Bermuda, at either a
Eurodollar Rate (as defined in the Bermuda Credit Agreement) or a Base Rate (as
27
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 11. Borrowings (continued)
defined in the Bermuda Credit Agreement) plus, in each case, an applicable margin specified in the
Bermuda Credit Agreement. The underwriting fee paid of $0.8 million was deferred and amortized
over the term of the loan. Sykes Bermuda repaid the entire outstanding amount plus accrued interest
on March 31, 2010. The related interest expense and amortization of deferred loan fees of $1.4
million are included in Interest expense in the accompanying Condensed Consolidated Statement of
Operations for the three months ended March 31, 2010 (none for the three months ended March 31,
2011).
Note 12. Accumulated Other Comprehensive Income (Loss)
The Company presents data in the Condensed Consolidated Statements of Changes in Shareholders
Equity in accordance with ASC 220 (ASC 220) Comprehensive Income. ASC 220 establishes rules
for the reporting of comprehensive income (loss) and its components. The components of accumulated
other comprehensive income (loss) consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
Unrealized |
|
Unrealized |
|
Unrealized |
|
|
|
|
Foreign |
|
(Loss) on |
|
Actuarial Gain |
|
Gain (Loss) on |
|
Gain (Loss) on |
|
|
|
|
Currency |
|
Net |
|
(Loss) Related |
|
Cash Flow |
|
Post |
|
|
|
|
Translation |
|
Investment |
|
to Pension |
|
Hedging |
|
Retirement |
|
|
|
|
Adjustment |
|
Hedge |
|
Liability |
|
Instruments |
|
Obligation |
|
Total |
|
|
|
Balance at January 1, 2010 |
|
$ |
4,317 |
|
|
$ |
|
|
|
$ |
1,207 |
|
|
$ |
2,019 |
|
|
$ |
276 |
|
|
$ |
7,819 |
|
Pre-tax amount |
|
|
9,790 |
|
|
|
(3,955 |
) |
|
|
(31 |
) |
|
|
4,936 |
|
|
|
104 |
|
|
|
10,844 |
|
Tax benefit |
|
|
|
|
|
|
1,390 |
|
|
|
|
|
|
|
321 |
|
|
|
|
|
|
|
1,711 |
|
Reclassification to net loss |
|
|
(7 |
) |
|
|
|
|
|
|
(52 |
) |
|
|
(5,173 |
) |
|
|
(34 |
) |
|
|
(5,266 |
) |
Foreign currency translation |
|
|
(108 |
) |
|
|
|
|
|
|
65 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
13,992 |
|
|
|
(2,565 |
) |
|
|
1,189 |
|
|
|
2,146 |
|
|
|
346 |
|
|
|
15,108 |
|
Pre-tax amount |
|
|
6,874 |
|
|
|
|
|
|
|
87 |
|
|
|
(272 |
) |
|
|
26 |
|
|
|
6,715 |
|
Tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152 |
|
|
|
|
|
|
|
152 |
|
Reclassification to net income |
|
|
(302 |
) |
|
|
|
|
|
|
(14 |
) |
|
|
(532 |
) |
|
|
(9 |
) |
|
|
(857 |
) |
Foreign currency translation |
|
|
(38 |
) |
|
|
|
|
|
|
12 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011 |
|
$ |
20,526 |
|
|
$ |
(2,565 |
) |
|
$ |
1,274 |
|
|
$ |
1,520 |
|
|
$ |
363 |
|
|
$ |
21,118 |
|
|
|
|
Except as discussed in Note 13, Income Taxes, earnings associated with the Companys
investments in its subsidiaries are considered to be permanently invested and no provision for
income taxes on those earnings or translation adjustments has been provided.
Note 13. Income Taxes
The Companys effective tax rate was 4.2% and 5.4% for the three months ended March 31, 2011, and
2010, respectively. The differences in the Companys effective tax rate of 4.2% as compared to the
U.S. statutory federal income tax rate of 35.0% was primarily due to the recognition of tax
benefits resulting from income earned in certain tax holiday jurisdictions, losses in jurisdictions
for which tax benefits either can or cannot be recognized, adjustments of valuation allowances,
changes in unrecognized tax positions, foreign withholding taxes and permanent differences.
The liability for unrecognized tax benefits is recorded as Long-term income tax liabilities in
the accompanying Condensed Consolidated Balance Sheets. The Company has accrued $18.6 million at
March 31, 2011, and $21.0 million at December 31, 2010, excluding penalties and interest. The $2.4
million decrease relates primarily to a favorable resolution of a tax audit.
Generally, earnings associated with the investments in our subsidiaries are considered to be
permanently invested and provisions for income taxes on those earnings or translation adjustments
are not recorded. However in 2010, the Company changed its intent to distribute current earnings
from various foreign operations to their foreign parents to take advantage of the December 2010 Tax
Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Tax Relief
Act), which includes the extension until December 31, 2011 of Internal Revenue Code Section
954(c)(6). The Tax Relief Act permits continued tax deferral on such distributions that would
otherwise be taxable immediately in the United States. While the distributions are not taxable in
the United States, related foreign withholding taxes have been accrued in the Condensed
Consolidated Balance Sheets.
28
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 13. Income Taxes (continued)
In addition, the U.S. Department of the Treasury released the General Explanations of the
Administrations Fiscal Year 2012 Revenue Proposals in February 2011. These proposals represent a
significant shift in international tax policy, which may materially impact U.S. taxation of
international earnings. The Company continues to monitor these proposals and is currently
evaluating their potential impact on its financial condition, results of operations, and cash
flows. Determination of any unrecognized deferred tax liability for temporary differences related
to investments in foreign subsidiaries that are essentially permanent in nature is not practicable.
The U.S. Internal Revenue Service is currently conducting a limited audit of the 2007 tax year.
The Canadian tax authority is currently auditing tax years 2003 through 2006 and 2008 through 2009.
The German tax authority is currently auditing tax periods 2005 through 2007. In the Philippines,
the Company is being audited by the Philippine tax authorities for tax years 2007 and 2008. The
Companys Indian subsidiary is currently under examination in India for fiscal tax years 2004
through 2007. As of March 31, 2011, the Company believes it has adequately accrued for these
audits.
Note 14. Earnings Per Share
Basic earnings per share are based on the weighted average number of common shares outstanding
during the periods. Diluted earnings per share includes the weighted average number of common
shares outstanding during the respective periods and the further dilutive effect, if any, from
stock options, stock appreciation rights, restricted stock, common stock units and shares held in a
rabbi trusts using the treasury stock method. For the three months ended March 31, 2011 and 2010,
the impact of outstanding options to purchase shares of common stock and stock appreciation rights
of 0.5 million shares and 0.2 million shares, respectively, were anti-dilutive and were excluded
from the calculation of diluted earnings per share.
The numbers of shares used in the earnings per share computation are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Basic: |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
46,409 |
|
|
|
44,590 |
|
Diluted: |
|
|
|
|
|
|
|
|
Dilutive effect of stock options, stock appreciation
rights, restricted stock, common stock units and
shares held in a rabbi trust |
|
|
168 |
|
|
|
176 |
|
|
|
|
|
|
|
|
Total weighted average diluted shares outstanding |
|
|
46,577 |
|
|
|
44,766 |
|
|
|
|
|
|
|
|
On August 5, 2002, the Companys Board of Directors authorized the Company to purchase up to 3.0
million shares of its outstanding common stock. A total of 2.5 million shares have been repurchased
under this program since inception. The shares are purchased, from time to time, through open
market purchases or in negotiated private transactions, and the purchases are based on factors,
including but not limited to, the stock price and general market conditions. During the three
months ended March 31, 2011, the Company repurchased 0.3 million common shares under the 2002
repurchase program at prices ranging from $18.24 to $18.53 per share for a total cost of $5.5
million; these shares were then immediately retired. During the three months ended March 31, 2010,
the Company repurchased 0.2 million common shares under the 2002 repurchase program at prices
ranging from $13.72 to $14.75 per share for a total cost of $3.2 million.
Note 15. Commitments and Loss Contingency
Purchase Commitments
During the three months ended March 31, 2011, the Company entered into several agreements with
third-party vendors in the ordinary course of business whereby the Company committed to purchase
goods and services used in its normal operations. These agreements, which are not cancelable, range
from one to four year periods and contain fixed or minimum annual commitments. Certain of these
agreements allow for renegotiation of the minimum annual commitments based on certain conditions.
29
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 15. Commitments and Loss Contingency (continued)
Purchase Commitments (continued)
The following is a schedule of future minimum purchase commitments under these agreements as of
March 31, 2011 (in thousands):
|
|
|
|
|
|
|
Total |
|
|
2011 (remaining nine months) |
|
$ |
2,200 |
|
2012 |
|
|
1,856 |
|
2013 |
|
|
1,093 |
|
2014 |
|
|
64 |
|
2015 |
|
|
|
|
2016 and thereafter |
|
|
|
|
|
|
|
|
Total minimum payments required |
|
$ |
5,213 |
|
|
|
|
|
Except for the contractual obligations mentioned above, there have not been any material
changes to the Companys outstanding contractual obligations from the disclosure in the Companys
Annual Report on Form 10-K for the year ended December 31, 2010.
Loss Contingency
The Company has previously disclosed three pending matters involving regulatory sanctions assessed
against the Companys Spanish subsidiary. All three matters relate to the alleged inappropriate
acquisition of personal information in connection with two outbound client contracts. In connection
with the appeal of one of these claims, the Company issued a bank guarantee, which is included as
restricted cash of $0.4 million and $0.4 million in Deferred charges and other assets in the
accompanying Condensed Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010,
respectively. Based upon the opinion of legal counsel regarding the likely outcome of these three
matters, the Company accrued a liability in the amount of $1.3 million under ASC 450
Contingencies because management believed that a loss was probable and the amount of the loss
could be reasonably estimated. During the quarter ended December 31, 2010, the Spanish Supreme
Court ruled in the Companys favor in one of the three subject claims. Accordingly, the Company
has reversed the accrual in the amount of $0.5 million related to that particular claim. The
accrued liability included in Other accrued expenses and current liabilities in the accompanying
Condensed Consolidated Balance Sheets was $0.8 million and $0.8 million as of March 31, 2011 and
December 31, 2010, respectively. One of the other two claims has been finally decided against the
Company on procedural grounds, and the final claim remains on appeal to the Spanish Supreme Court.
The Company from time to time is involved in other legal actions arising in the ordinary course of
business. With respect to these matters, management believes that it has adequate legal defenses
and/or when possible and appropriate, provided adequate accruals related to those matters such that
the ultimate outcome will not have a material adverse effect on the Companys financial position or
results of operations.
Note 16. Defined Benefit Pension Plan and Postretirement Benefits
Defined Benefit Pension Plans
The following table provides information about the net periodic benefit cost for the pension plans
for the three months ended March 31, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2011 |
|
|
2010 |
|
Service cost |
|
$ |
19 |
|
|
$ |
10 |
|
Interest cost |
|
|
25 |
|
|
|
10 |
|
Recognized actuarial (gains) |
|
|
(14 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
30 |
|
|
$ |
12 |
|
|
|
|
|
|
|
|
30
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 16. Defined Benefit Pension Plan and Postretirement Benefits (continued)
Employee Retirement Savings Plans
The Company maintains a 401(k) plan covering defined employees who meet established eligibility
requirements. Under the plan provisions, the Company matches 50% of participant contributions to a
maximum matching amount of 2% of participant compensation. The Company contribution was $0.3
million and $0.3 million for the three months ended March 31, 2011 and 2010, respectively.
In connection with the acquisition of ICT in February 2010, the Company assumed ICTs profit
sharing plan (Section 401(k)). Under this profit sharing plan, the Company matches 50% of employee
contributions for all qualified employees, as defined, up to a maximum of 6% of the employees
compensation; however, it may also make additional contributions to the plan based upon profit
levels and other factors. No such additional contributions were made during the three months ended
March 31, 2011. Employees are fully vested in their contributions, while full vesting in the
Companys contributions occurs upon death, disability, retirement or completion of five years of
service.
Split-Dollar Life Insurance Arrangement
In 1996, the Company entered into a split-dollar life insurance arrangement to benefit the former
Chairman and Chief Executive Officer of the Company. Under the terms of the arrangement, the
Company retained a collateral interest in the policy to the extent of the premiums paid by the
Company. Effective January 1, 2008, the Company recorded a $0.5 million liability for a
post-retirement benefit obligation related to this arrangement, which was accounted for as a
reduction to the January 1, 2008 balance of retained earnings in accordance with ASC 715-60
Defined Benefit Plans Other Postretirement. The postretirement benefit obligation of $0.1
million and $0.2 million was included in Other long-term liabilities as of March 31, 2011 and
December 31, 2010, respectively, in the accompanying Condensed Consolidated Balance Sheets. The
Company has an unrealized gain of $0.4 million and $0.3 million as of March 31, 2011 and December
31, 2010, respectively, due to changes in discount rates related to the postretirement obligation,
which was recorded in Accumulated other comprehensive income in the accompanying Condensed
Consolidated Balance Sheets.
Note 17. Stock-Based Compensation
The Companys stock-based compensation plans include the 2001 Equity Incentive Plan, the 2011
Equity Incentive Plan, the 2004 Non-Employee Director Fee Plan and the Deferred Compensation Plan.
Stock-based compensation expense related to these plans, which is included in General and
administrative costs primarily in the Americas in the accompanying Condensed Consolidated
Statements of Operations, was $1.7 million and $1.8 million for the three months ended March 31,
2011 and 2010, respectively. The Company recognized income tax benefits in the accompanying
Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010
of $0.7 million and $0.7 million, respectively. In addition, the Company recognized benefits of tax
deductions in excess of recognized tax benefits of $0.4 million from the exercise of stock options
in the three months ended March 31, 2010 (not material for 2011). There were no capitalized
stock-based compensation costs at March 31, 2011 and December 31, 2010.
2001 Equity Incentive Plan The Companys 2001 Equity Incentive Plan (the 2001
Plan), which is shareholder-approved, permits the grant of stock options, stock appreciation
rights, restricted stock and other stock-based awards to certain employees of the Company, and
certain non-employees who provide services to the Company, for up to 7.0 million shares of common
stock in order to encourage them to remain in the employment of or to diligently provide services
to the Company and to increase their interest in the Companys success. The 2001 Plan expired on
March 14, 2011. The outstanding awards granted under the 2001 Plan will remain in effect until
their exercise, expiration, or termination. The 2001 Plan will be replaced by the 2011 Equity
Incentive Plan, as discussed below.
31
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 17. Stock-Based Compensation (continued)
Stock Options The following table summarizes stock option activity under the 2001 Plan as of
March 31, 2011 and for the three months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Term |
|
|
Intrinsic |
|
Stock Options |
|
Shares (000s) |
|
|
Price |
|
|
(in years) |
|
|
Value (000s) |
|
|
Outstanding at January 1, 2011 |
|
|
43 |
|
|
$ |
8.54 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011 |
|
|
43 |
|
|
$ |
8.54 |
|
|
|
1.2 |
|
|
$ |
856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at March 31, 2011 |
|
|
43 |
|
|
$ |
8.54 |
|
|
|
1.2 |
|
|
$ |
856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2011 |
|
|
43 |
|
|
$ |
8.54 |
|
|
|
1.2 |
|
|
$ |
856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No stock options were granted during the three months ended March 31, 2011 and 2010.
No options were exercised during the three months ended March 31, 2011 and 2010. There is no
unrecognized compensation cost as of March 31, 2011 and December 31, 2010 related to these options
granted under the 2001 Plan (the effect of estimated forfeitures is not material.)
Stock Appreciation Rights The fair value of each SAR is estimated on the date of grant using the
Black-Scholes valuation model that uses various assumptions. The fair value of the SARs is expensed
on a straight-line basis over the requisite service period. Expected volatility is based on the
historical volatility of the Companys stock. The risk-free rate for periods within the contractual
life of the award is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the
award is granted with a maturity equal to the expected term of the award. Exercises and forfeitures
are estimated within the valuation model using employee termination and other historical data. The
expected term of the SARs granted represents the period of time the SARs are expected to be
outstanding.
The following table summarizes the assumptions used to estimate the fair value of SARs granted
during the three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2011 |
|
2010 |
Expected volatility |
|
|
44.3 |
% |
|
|
45.0 |
% |
Weighted-average volatility |
|
|
44.3 |
% |
|
|
45.0 |
% |
Expected dividends |
|
|
|
|
|
|
|
|
Expected term (in years) |
|
|
4.6 |
|
|
|
4.4 |
|
Risk-free rate |
|
|
2.0 |
% |
|
|
2.4 |
% |
32
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 17. Stock-Based Compensation (continued)
Stock Appreciation Rights (continued)
The following table summarizes SARs activity under the 2001 Plan as of March 31, 2011 and for
the three months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Aggregate |
|
|
|
|
|
|
|
Exercise |
|
|
Term |
|
|
Intrinsic |
|
Stock Appreciation Rights |
|
Shares (000s) |
|
|
Price |
|
|
(in years) |
|
|
Value (000s) |
|
|
Outstanding at January 1, 2011 |
|
|
442 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011 |
|
|
657 |
|
|
$ |
|
|
|
|
7.5 |
|
|
$ |
394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at March 31, 2011 |
|
|
296 |
|
|
$ |
|
|
|
|
7.5 |
|
|
$ |
394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2011 |
|
|
296 |
|
|
$ |
|
|
|
|
7.1 |
|
|
$ |
389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair value of the SARs granted during the three months ended
March 31, 2011 and 2010 was $7.10 and $10.21, respectively. The total intrinsic value of SARs
exercised during the three months ended March 31, 2010 $0.6 million (none in the three months ended
March 31, 2011).
The following table summarizes the status of nonvested SARs under the 2001 Plan as of March 31,
2011 and for the three months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
Nonvested Stock Appreciation Rights |
|
Shares (000s) |
|
|
Fair Value |
|
|
Nonvested at January 1, 2011 |
|
|
293 |
|
|
$ |
8.63 |
|
Granted |
|
|
215 |
|
|
$ |
7.10 |
|
Vested |
|
|
(146 |
) |
|
$ |
8.18 |
|
Forfeited or expired |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2011 |
|
|
362 |
|
|
$ |
7.90 |
|
|
|
|
|
|
|
|
|
As of March 31, 2011, there was $2.6 million of total unrecognized compensation cost, net of
estimated forfeitures, related to nonvested SARs granted under the 2001 Plan. This cost is expected
to be recognized over a weighted average period of 2.3 years. SARs that vested during the three
months ended March 31, 2010 had a fair value of $0.6 million as of the vesting date (none in the
three months ended March 31, 2011).
Restricted Shares The following table summarizes the status of nonvested Restricted Shares/RSUs
under the 2001 Plan as of March 31, 2011 and for the three months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
Nonvested Restricted Shares / RSUs |
|
Shares (000s) |
|
|
Fair Value |
|
|
Nonvested at January 1, 2011 |
|
|
587 |
|
|
$ |
20.30 |
|
Granted |
|
|
284 |
|
|
$ |
18.67 |
|
Vested |
|
|
(187 |
) |
|
$ |
18.01 |
|
Forfeited or expired |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2011 |
|
|
684 |
|
|
$ |
20.25 |
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair value of the Restricted Shares/RSUs granted during the
three months ended March 31, 2011 and 2010 was $18.67 and $23.88, respectively.
33
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 17. Stock-Based Compensation (continued)
Restricted Shares (continued)
As of March 31, 2011, based on the probability of achieving the performance goals, there was $11.9
million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested
Restricted Shares/RSUs granted under the 2001 Plan. This cost is expected to be recognized over a
weighted average period of 2.3 years. The Restricted Shares/RSUs that vested during the three
months ended March 31, 2011 and 2010 had a fair value of $3.9 million and $4.3 million,
respectively, as of the vesting date.
Other Awards The following table summarizes CSUs activity under the 2001 Plan as of March 31,
2011, and changes during the three months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
Nonvested Common Stock Units |
|
Shares (000s) |
|
|
Fair Value |
|
|
Nonvested at January 1, 2011 |
|
|
66 |
|
|
$ |
20.33 |
|
Granted |
|
|
44 |
|
|
$ |
18.67 |
|
Vested |
|
|
(26 |
) |
|
$ |
18.11 |
|
Forfeited or expired |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2011 |
|
|
84 |
|
|
$ |
20.15 |
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair value of the CSUs granted during the three months ended
March 31, 2011 and 2010 was $18.67 and $23.88, respectively.
As of March 31, 2011, there was $1.2 million of total unrecognized compensation costs, net of
estimated forfeitures, related to nonvested CSUs granted under the 2001 Plan. This cost is expected
to be recognized over a weighted average period of 2.3 years. The fair value of the CSUs that
vested during the three months ended March 31, 2011 and 2010 were $0.5 million and $0.6 million,
respectively, as of the vesting dates. Until a CSU vests, the participant has none of the rights
of a shareholder with respect to the CSU or the common stock underlying the CSU. CSUs are not
transferable.
2011 Equity Incentive Plan The Board of Directors adopted the Sykes
Enterprises, Incorporated 2011 Equity Incentive Plan (the 2011 Plan) on March 23, 2011, subject
to shareholder approval at the Annual Meeting, and the 2011 Plan will become effective when
shareholder approval is obtained. The 2011 Plan has the same material terms and conditions as the
2001 Plan. The 2011 Plan permits the grant of stock options, stock appreciation rights and other
stock-based awards to certain employees of the Company, and certain non-employees who provide
services to the Company, for up to 5.7 million shares of common stock in order to encourage them to
remain in the employment of or to faithfully provide services to the Company and to increase their
interest in the Companys success. This constitutes the number of shares that were available under
the 2001 Plan at the time of expiration.
2004 Non-Employee Director Fee Plan The Companys 2004 Non-Employee Director
Fee Plan (the 2004 Fee Plan) provides that all new non-employee directors joining the Board of
Directors (the Board) will receive an initial grant of shares of common stock on the date the new
director is elected or appointed, the number of which will be determined by dividing $60,000 by the
closing price of the Companys common stock on the trading day immediately preceding the date a new
director is elected or appointed, rounded to the nearest whole number of shares. The initial grant
of shares vests in twelve equal quarterly installments, one-twelfth on the date of grant and an
additional one-twelfth on each successive third monthly anniversary of the date of grant. The
award lapses with respect to all unvested shares in the event the non-employee director ceases to
be a director of the Company, and any unvested shares are forfeited.
The 2004 Fee Plan also provides that each non-employee director will receive, on the day after the
annual shareholders meeting, an annual retainer for service as a non-employee director (the Annual
Retainer). The Annual Retainer consists of shares of the Companys common stock and cash. The
total value of the Annual Retainer is $77,500, payable $32,500 in cash and the remainder paid in
stock, the amount of which is determined by dividing $45,000 by the closing price of the Companys
common stock on the date of the annual meeting of shareholders, rounded to the nearest whole number
of shares.
34
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 17. Stock-Based Compensation (continued)
2004 Non-Employee Director Fee Plan (continued)
In addition to the Annual Retainer award, the 2004 Fee Plan also provides for any non-employee
Chairman of the Board to receive an additional annual cash award of $100,000, and each non-employee
director serving on a committee of the Board to receive an additional annual cash award. The
additional annual cash award for the Chairperson of the Audit Committee is $20,000 and Audit
Committee members are entitled to an annual cash award of $10,000. The annual cash awards for the
Chairpersons of the Compensation and Human Resource Development Committee, Finance Committee and
Nominating and Corporate Governance Committee are $12,500 and the members of such committees are
entitled to an annual cash award of $7,500.
The annual grant of cash and shares, including all amounts paid to a non-employee Chairman of the
Board and all amounts paid to non-employee directors serving on committees of the Board, vests in
eight equal quarterly installments, one-eighth on the day following the annual meeting of
shareholders, and an additional one-eighth on each successive third monthly anniversary of the date
of grant. The award lapses with respect to all unpaid cash and unvested shares in the event the
non-employee director ceases to be a director of the company, and any unvested shares and unpaid
cash are forfeited.
The Board may pay additional cash compensation to any non-employee director for services on behalf
of the Board over and above those typically expected of directors, including but not limited to
service on a special committee of the Board.
Prior to 2008, the grants were comprised of common stock units (CSUs) rather than shares of
common stock. A CSU is a bookkeeping entry on the Companys books that records the equivalent of
one share of common stock.
The following table summarizes the status of the nonvested CSUs and share awards under the 2004 Fee
Plan as of March 31, 2011 and for the three months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
Nonvested Common Stock Units and Share Awards |
|
Shares (000s) |
|
|
Fair Value |
|
|
Nonvested at January 1, 2011 |
|
|
18 |
|
|
$ |
18.67 |
|
Granted |
|
|
|
|
|
$ |
|
|
Vested |
|
|
(6 |
) |
|
$ |
17.86 |
|
Forfeited or expired |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2011 |
|
|
12 |
|
|
$ |
19.11 |
|
|
|
|
|
|
|
|
|
No CSUs or share awards were granted during the three months ended March 31, 2011 and 2010.
As of March 31, 2011, there was $0.2 million of total unrecognized compensation costs, net of
estimated forfeitures, related to nonvested CSUs granted since March 2008 under the Plan. This cost
is expected to be recognized over a weighted average period of 0.9 year. CSUs and share awards
that vested during the three months ended March 31, 2011 and 2010 had a fair value of $0.1 million
and $0.1 million, respectively.
Deferred Compensation Plan The Companys non-qualified Deferred Compensation
Plan (the Deferred Compensation Plan), which is not shareholder-approved, provides certain
eligible employees the ability to defer any portion of their compensation until the participants
retirement, termination, disability or death, or a change in control of the Company. Deferred
compensation amounts used to pay benefits, which are held in a rabbi trust, include investments in
various mutual funds and shares of the Companys common stock (See Note 9, Investments Held in
Rabbi Trusts.) As of March 31, 2011 and December 31, 2010, respectively, liabilities of $3.9
million and $3.4 million, respectively, of the Deferred Compensation Plan were recorded in Accrued
employee compensation and benefits in the accompanying Condensed Consolidated Balance Sheets.
Additionally, the Companys common stock match associated with the Deferred Compensation Plan, with
a carrying value of approximately $1.1 million and $1.0 million at March 31, 2011 and December 31,
2010, respectively, is included in Treasury stock in the accompanying Condensed Consolidated
Balance Sheets.
35
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 17. Stock-Based Compensation (continued)
Deferred Compensation Plan (continued)
The following table summarizes the status of the nonvested common stock issued under the Deferred
Compensation Plan as of March 31, 2011 and for the three months then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant-Date |
|
Nonvested Common Stock |
|
Shares (000s) |
|
|
Fair Value |
|
|
Nonvested at January 1, 2011 |
|
|
8 |
|
|
$ |
18.00 |
|
Granted |
|
|
6 |
|
|
$ |
19.77 |
|
Vested |
|
|
(5 |
) |
|
$ |
19.08 |
|
Forfeited or expired |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2011 |
|
|
9 |
|
|
$ |
18.36 |
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair value of common stock awarded during the three months
ended March 31, 2011 and 2010 was $19.77 and $22.84, respectively.
As of March 31, 2011, there was $0.2 million of total unrecognized compensation cost, net of
estimated forfeitures, related to nonvested common stock granted under the Deferred Compensation
Plan. This cost is expected to be recognized over a weighted average period of 3.9 years. The total
fair value of the common stock vested during the three months ended March 31, 2011 and 2010 was
$0.1 million and $0.1 million, respectively.
No cash was used to settle the Companys obligation under the Deferred Compensation Plan for the
three months ended March 31, 2011 and 2010.
Note 18. Segments and Geographic Information
The Company operates within two regions, the Americas and EMEA, which represent 79.5% and 20.5%,
respectively, of consolidated revenues for the three months ended March 31, 2011. The Americas and
EMEA regions represented 77.6% and 22.4%, respectively, of consolidated revenues for the three
months ended March 31, 2010. Each region represents a reportable segment comprised of aggregated
regional operating segments, which portray similar economic characteristics. The Company aligns its
business into two segments to effectively manage the business and support the customer care needs
of every client and to respond to the demands of the Companys global customers.
The reportable segments consist of (1) the Americas, which includes the United States, Canada,
Latin America, India and the Asia Pacific Rim, and provides outsourced customer contact management
solutions (with an emphasis on technical support and customer service) and technical staffing and
(2) EMEA, which includes Europe, the Middle East and Africa, and provides outsourced customer
contact management solutions (with an emphasis on technical support and customer service) and
fulfillment services. The sites within Latin America, India and the Asia Pacific Rim are included
in the Americas segment given the nature of the business and client profile, which is primarily
made up of U.S.-based companies that are using the Companys services in these locations to support
their customer contact management needs.
36
Sykes
Enterprises, Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2011 and 2010
(Unaudited)
Note 18. Segments and Geographic Information (continued)
Information about the Companys reportable segments for the three months ended March 31, 2011 and
2010 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
|
EMEA |
|
|
Other(1) |
|
|
Consolidated |
|
|
|
|
Three Months Ended March 31, 2011: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (2) |
|
$ |
246,535 |
|
|
$ |
63,621 |
|
|
|
|
|
|
$ |
310,156 |
|
Depreciation and amortization (2) |
|
$ |
12,817 |
|
|
$ |
1,415 |
|
|
|
|
|
|
$ |
14,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
27,027 |
|
|
$ |
519 |
|
|
$ |
(12,180 |
) |
|
$ |
15,366 |
|
Other (expense), net |
|
|
|
|
|
|
|
|
|
|
(1,615 |
) |
|
|
(1,615 |
) |
Income taxes |
|
|
|
|
|
|
|
|
|
|
(573 |
) |
|
|
(573 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,178 |
|
(Loss) from discontinued operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets as of March 31, 2011 |
|
$ |
1,207,912 |
|
|
$ |
1,228,809 |
|
|
$ |
(1,625,037 |
) |
|
$ |
811,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
|
EMEA |
|
|
Other(1) |
|
|
Consolidated |
|
|
|
|
Three Months Ended March 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (2) |
|
$ |
206,902 |
|
|
$ |
59,680 |
|
|
|
|
|
|
$ |
266,582 |
|
Depreciation and amortization (2) |
|
$ |
10,719 |
|
|
$ |
1,319 |
|
|
|
|
|
|
$ |
12,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
27,311 |
|
|
$ |
(705 |
) |
|
$ |
(31,697 |
) |
|
$ |
(5,091 |
) |
Other (expense), net |
|
|
|
|
|
|
|
|
|
|
(3,543 |
) |
|
|
(3,543 |
) |
Income taxes |
|
|
|
|
|
|
|
|
|
|
467 |
|
|
|
467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from continuing operations, net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,167 |
) |
(Loss) from discontinued operations, net of taxes |
|
|
(1,346 |
) |
|
|
|
|
|
|
|
|
|
|
(1,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(9,513 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets as of March 31, 2010 |
|
$ |
1,642,103 |
|
|
$ |
890,055 |
|
|
$ |
(1,651,068 |
) |
|
$ |
881,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other items (including corporate costs, provision for regulatory penalties,
impairment costs, other income and expense, and income taxes) are shown for purposes of
reconciling to the Companys consolidated totals as shown in the table above for the three
months ended March 31, 2011 and 2010. The accounting policies of the reportable segments are the
same as those described in Note 1 to the consolidated financial statements in the Annual Report
on Form 10-K for the year ended December 31, 2010. Inter-segment revenues are not material to
the Americas and EMEA segment results. The Company evaluates the performance of its geographic
segments based on revenue and income (loss) from operations, and does not include segment assets
or other income and expense items for management reporting purposes. |
|
(2) |
|
Revenues and depreciation and amortization include results from continuing operations
only. |
Note 19. Related Party Transactions
The Company paid John H. Sykes, the founder, former Chairman and Chief Executive Officer of the
Company and the father of Charles Sykes, President and Chief Executive Officer of the Company, less
than $0.1 million, for the use of his private jet during the three months ended March 31, 2010,
which is based on two times fuel costs and other actual costs incurred for each trip (none in the
comparable 2011 period).
In January 2008, the Company entered into a lease for a customer contact management center located
in Kingstree, South Carolina. The landlord, Kingstree Office One, LLC, is an entity controlled by
John H. Sykes. The lease payments on the 20 year lease were negotiated at or below market rates,
and the lease is cancellable at the option of the Company. There are significant penalties for
early cancellation which decrease over time. The Company paid $0.1 million and $0.1 million to the
landlord during the three months ended March 31, 2011 and 2010, respectively, under the terms of
the lease.
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Sykes Enterprises, Incorporated
400 North Ashley Drive
Tampa, Florida
We have reviewed the accompanying condensed consolidated balance sheet of Sykes Enterprises,
Incorporated and subsidiaries (the Company) as of March 31, 2011, and the related condensed
consolidated statements of operations for the three-month periods ended March 31, 2011 and 2010, of
changes in shareholders equity for the three-month periods ended March 31, 2011 and 2010 and the
nine-month period ended December 31, 2010, and of cash flows for the three-month periods ended
March 31, 2011 and 2010. These interim financial statements are the responsibility of the
Companys management.
We conducted our reviews in accordance with the standards of the Public Company Accounting
Oversight Board (United States). A review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in accordance with
the standards of the Public Company Accounting Oversight Board (United States), the objective of
which is the expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such
condensed consolidated interim financial statements for them to be in conformity with accounting
principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of the Company as of December 31,
2010, and the related consolidated statements of operations, changes in shareholders equity, and
cash flows for the year then ended (not presented herein); and in our report dated March 8, 2011,
we expressed an unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance sheet as of December
31, 2010 is fairly stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
May 5, 2011
38
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with the condensed consolidated financial statements
and notes included elsewhere in this report and the consolidated financial statements and notes in
the Sykes Enterprises, Incorporated (SYKES, our, we or us) Annual Report on Form 10-K for
the year ended December 31, 2010, as filed with the Securities and Exchange Commission (SEC).
Our discussion and analysis may contain forward-looking statements (within the meaning of the
Private Securities Litigation Reform Act of 1995) that are based on current expectations,
estimates, forecasts, and projections about SYKES, our beliefs, and assumptions made by us. In
addition, we may make other written or oral statements, which constitute forward-looking
statements, from time to time. Words such as believe, estimate, project, expect, intend,
may, anticipate, plan, seek, variations of such words, and similar expressions
are intended to identify such forward-looking statements. Similarly, statements that describe our
future plans, objectives, or goals also are forward-looking statements. These statements are not
guarantees of future performance and are subject to a number of risks and uncertainties, including
those discussed below and elsewhere in this report. Our actual results may differ materially from
what is expressed or forecasted in such forward-looking statements, and undue reliance should not
be placed on such statements. All forward-looking statements are made as of the date hereof, and we
undertake no obligation to update any such forward-looking statements, whether as a result of new
information, future events or otherwise.
Factors that could cause actual results to differ materially from what is expressed or forecasted
in such forward-looking statements include, but are not limited to: (i) the impact of economic
recessions in the U.S. and other parts of the world, (ii) fluctuations in global business
conditions and the global economy, (iii) currency fluctuations, (iv) the timing of significant
orders for our products and services, (v) variations in the terms and the elements of services
offered under our standardized contract including those for future bundled service offerings, (vi)
changes in applicable accounting principles or interpretations of such principles, (vii)
difficulties or delays in implementing our bundled service offerings, (viii) failure to achieve
sales, marketing and other objectives, (ix) construction delays of new or expansion of existing
customer contact management centers, (x) delays in our ability to develop new products and services
and market acceptance of new products and services, (xi) rapid technological change, (xii) loss or
addition of significant clients, (xiii) political and country-specific risks inherent in conducting
business abroad, (xiv) our ability to attract and retain key management personnel, (xv) our ability
to continue the growth of our support service revenues through additional technical and customer
contact management centers, (xvi) our ability to further penetrate into vertically integrated
markets, (xvii) our ability to expand our global presence through strategic alliances and selective
acquisitions, (xviii) our ability to continue to establish a competitive advantage through
sophisticated technological capabilities, (xix) the ultimate outcome of any lawsuits, (xx) our
ability to recognize deferred revenue through delivery of products or satisfactory performance of
services, (xxi) our dependence on trend toward outsourcing, (xxii) risk of interruption of
technical and customer contact management center operations due to such factors as fire,
earthquakes, inclement weather and other disasters, power failures, telecommunication failures,
unauthorized intrusions, computer viruses and other emergencies, (xxiii) the existence of
substantial competition, (xxiv) the early termination of contracts by clients, (xxv) the ability to
obtain and maintain grants and other incentives (tax or otherwise), (xxvi) the potential of cost
savings/synergies associated with the ICT acquisition not being realized, or not being realized
within the anticipated time period, (xxvii) risks related to the integration of the businesses of
SYKES and ICT and (xxviii) other risk factors which are identified in our most recent Annual Report
on Form 10-K, including factors identified under the headings Business, Risk Factors and
Managements Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We provide an array of sophisticated customer contact management solutions to a wide range of
clients including Fortune 1000 companies, medium-sized businesses, and public institutions around
the world, primarily in the communications, financial services, technology/consumer, transportation
and leisure, healthcare and other industries. We serve our clients through two geographic operating
regions: the Americas (United States, Canada, Latin America, India and the Asia Pacific Rim) and
EMEA (Europe, the Middle East and Africa). Our Americas and EMEA groups primarily provide customer
contact management services (with an emphasis on inbound technical support and customer service),
which include customer assistance, healthcare and roadside assistance, technical support and
product sales to our clients customers. These services, which represented 98% of consolidated
revenues during the three months ended March 31, 2011, are delivered through multiple communication
channels encompassing phone, e-mail, Internet, text messaging and chat. We also provide various
enterprise support services in the United States (U.S.) that include services for our clients
internal support operations, from technical staffing
39
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
services to outsourced corporate help desk services. In Europe, we also provide fulfillment
services including multilingual sales order processing via the Internet and phone, payment
processing, inventory control, product delivery, and product returns handling. Our complete service
offering helps our clients acquire, retain and increase the lifetime value of their customer
relationships. We have developed an extensive global reach with customer contact management centers
throughout the United States, Canada, Europe, Latin America, Asia, India and Africa.
Acquisition of ICT
On February 2, 2010, we completed the acquisition of ICT Group Inc. (ICT), a Pennsylvania
corporation and a leading global provider of outsourced customer management and BPO solutions. We
refer to such acquisition herein as the ICT acquisition.
As a result of the ICT acquisition on February 2, 2010,
|
|
|
each outstanding share of ICTs common stock, par value $0.01 per share, was
converted into the right to receive $7.69 in cash, without interest, and 0.3423 of a
share of SYKES common stock, par value $0.01 per share; |
|
|
|
|
each outstanding ICT stock option, whether or not then vested and exercisable,
became fully vested and exercisable immediately prior to, and then was canceled at, the
effective time of the acquisition, and the holder of such option became entitled to
receive an amount in cash, without interest and less any applicable taxes to be
withheld, equal to (i) the excess, if any, of (1) $15.38 over (2) the exercise price
per share of ICT common stock subject to such ICT stock option, multiplied by (ii) the
total number of shares of ICT common stock underlying such ICT stock option, with the
aggregate amount of such payment rounded up to the nearest cent. If the exercise price
was equal to or greater than $15.38, then the stock option was canceled without any
payment to the stock option holder; and |
|
|
|
|
each outstanding ICT restricted stock unit (RSU) became fully vested and then was
canceled and the holder of such vested awards became entitled to receive $15.38 in
cash, without interest and less any applicable taxes to be withheld, in respect of each
share of ICT common stock into which the RSU would otherwise have been convertible. |
The total aggregate purchase price of the transaction of $277.8 million was comprised of $141.1
million in cash and 5.6 million shares of SYKES common stock valued at $136.7 million. The
transaction was funded through borrowings consisting of a $75 million short-term loan from KeyBank
National Association (KeyBank) in December, 2009, due and paid on March 31, 2010, and a $75
million term loan from a syndicate of banks due in varying installments through February 1, 2013
(the Term Loan). The outstanding balance due under the $75 million Term Loan was repaid during
the quarter ended September 30, 2010 the Term Loan and is no longer available for borrowings. See
Liquidity & Capital Resources later in this Item 2 and Note 11, Borrowings, of Notes to
Condensed Consolidated Financial Statements for further information.
The results of operations of ICT have been reflected in our Condensed Consolidated Statement of
Operations since February 2, 2010.
Discontinued Operations
In December 2010, we sold our Argentine operations, pursuant to stock purchase agreements, dated
December 16, 2010 and December 29, 2010. We reflected the operating results related to the
Argentine operations as discontinued operations in the Condensed Consolidated Statements of
Operations for the three months ended March 31, 2010. This business was historically reported as
part of the Americas segment. See Note 3, Discontinued Operations, of Notes to Condensed
Consolidated Financial Statements for additional information on the sale of the Argentine
operations.
See Results of Operations (Loss) from Discontinued Operations in this Item 2 for more
information. Unless otherwise noted, discussions below pertain only to our continuing operations.
40
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
Results of Operations
The following table sets forth, for the periods indicated, certain data derived from our Condensed
Consolidated Statements of Operations and certain of such data expressed as a percentage of
revenues (in thousands, except percentage amounts):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2011 |
|
2010 |
|
Revenues |
|
$ |
310,156 |
|
|
$ |
266,582 |
|
Percentage of revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
Direct salaries and related costs |
|
$ |
203,689 |
|
|
$ |
171,650 |
|
Percentage of revenues |
|
|
65.7 |
% |
|
|
64.4 |
% |
General and administrative |
|
$ |
90,375 |
|
|
$ |
100,023 |
|
Percentage of revenues |
|
|
29.1 |
% |
|
|
37.5 |
% |
Impairment of long-lived assets |
|
$ |
726 |
|
|
$ |
|
|
Percentage of revenues |
|
|
0.2 |
% |
|
|
0.0 |
% |
Income (loss) from continuing operations |
|
$ |
15,366 |
|
|
$ |
(5,091 |
) |
Percentage of revenues |
|
|
5.0 |
% |
|
|
(1.9 |
)% |
The following table summarizes our revenues for the periods indicated, by reporting segment
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2011 |
|
2010 |
|
|
|
|
|
Americas |
|
$ |
246,535 |
|
|
|
79.5 |
% |
|
$ |
206,902 |
|
|
|
77.6 |
% |
EMEA |
|
|
63,621 |
|
|
|
20.5 |
% |
|
|
59,680 |
|
|
|
22.4 |
% |
|
|
|
|
|
Consolidated |
|
$ |
310,156 |
|
|
|
100.0 |
% |
|
$ |
266,582 |
|
|
|
100.0 |
% |
|
|
|
|
|
41
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
The following table summarizes the amounts and percentage of revenues for direct salaries and
related costs, general and administrative costs and impairment of long-lived assets for the
periods indicated, by reporting segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
March 31, |
|
|
2011 |
|
2010 |
|
|
|
|
|
Direct salaries and related costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
156,276 |
|
|
|
63.4 |
% |
|
$ |
126,822 |
|
|
|
61.3 |
% |
EMEA |
|
|
47,413 |
|
|
|
74.5 |
% |
|
|
44,828 |
|
|
|
75.1 |
% |
|
|
|
|
|
Consolidated |
|
$ |
203,689 |
|
|
|
65.7 |
% |
|
$ |
171,650 |
|
|
|
64.4 |
% |
|
|
|
|
|
General and administrative: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
62,506 |
|
|
|
25.4 |
% |
|
$ |
52,769 |
|
|
|
25.5 |
% |
EMEA |
|
|
15,689 |
|
|
|
24.7 |
% |
|
|
15,557 |
|
|
|
26.1 |
% |
Corporate |
|
|
12,180 |
|
|
|
|
|
|
|
31,697 |
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
90,375 |
|
|
|
29.1 |
% |
|
$ |
100,023 |
|
|
|
37.5 |
% |
|
|
|
|
|
Impairment of long-lived assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
726 |
|
|
|
0.3 |
% |
|
$ |
|
|
|
|
0.0 |
% |
EMEA |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
Consolidated |
|
$ |
726 |
|
|
|
0.2 |
% |
|
$ |
|
|
|
|
0.0 |
% |
|
|
|
|
|
Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
Revenues
For the three months ended March 31, 2011, we recognized consolidated revenues of $310.2 million,
an increase of $43.6 million or 16.3%, from $266.6 million of consolidated revenues for the
comparable period in 2010. Excluding the ICT revenues of $100.3 million for the three months ended
March 31, 2011 and $63.7 million for the period beginning February 2, 2010 (the acquisition date)
through March 31, 2010, revenues increased $7.0 million for the three months ended March 31, 2011
compared to the same period in 2010.
On a geographic segment basis, revenues from the Americas region, including the United States,
Canada, Latin America, India and the Asia Pacific Rim, represented 79.5%, or $246.5 million, for
the three months ended March 31, 2011 compared to 77.6%, or $206.9 million, for the comparable
period in 2010. Revenues from the EMEA region, including Europe, the Middle East and Africa
represented 20.5%, or $63.7 million, for the three months ended March 31, 2011 compared to 22.4%,
or $59.7 million, for the comparable period in 2010.
The increase in the Americas revenues was $39.6 million, or 19.2%, for the three month ended March
31, 2011, compared to the same period in 2010. Excluding the ICT revenues of $100.3 million for the
three months ended March 31, 2011 and $63.4 million for the period beginning February 2, 2010 (the
acquisition date) through March 31, 2010, the Americas revenues for the three months ended March
31, 2011, compared to the same period in 2010 increased $2.8 million. The $2.8 million increase
consists of a positive foreign currency translation impact, net of an unfavorable foreign currency
hedging fluctuation, of $3.2 million, partially offset by a $0.4 million decrease in revenues
principally due to expiration of certain client programs and lower than forecasted demand within
certain clients. Revenues from our offshore operations represented 46.4%, or 51.8% excluding ICT
revenues, of Americas revenues, compared to 49.4%, or 54.9% excluding ICT revenues, for the same
period in 2010. While operating margins generated offshore are generally comparable to those in the
United States, our ability to maintain these offshore operating margins longer term is difficult to
predict due to potential increased competition for the available workforce, the trend of higher
occupancy costs and costs of functional currency fluctuations in offshore markets. We weight these
factors in our focus to re-price or replace certain sub-profitable target client programs.
The increase in EMEA revenues of $4.0 million, or 6.6%, for the three months ended March 31, 2011,
compared to
42
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
the same period in 2010, reflects an increase of $3.4 million due largely to existing and new
client programs and an $0.8 million positive foreign currency translation impact, partially offset
by a $0.3 million decrease in revenues due to the closure of certain sites in connection with the
Fourth Quarter 2010 Exit Plan. Excluding the $0.8 million positive foreign currency translation
impact, EMEAs revenues increased 5.2% for the three months ended March 31, 2011 from the
comparable period in 2010.
Direct Salaries and Related Costs
Direct salaries and related costs increased $32.0 million, or 18.6%, to $203.7 million for the
three months ended March 31, 2011 from $171.7 million in the comparable period in 2010. This
increase includes a $21.8 million increase in ICT direct salaries and related costs to $62.5
million for the three months ended March 31, 2011 from $40.7 million for the period beginning
February 2, 2010 (the acquisition date) through March 31, 2010.
On a reporting segment basis, direct salaries and
related costs from the Americas segment increased
$29.5 million, or 23.2%, to $156.3 million for the three months ended March 31, 2011 from $126.8
million in the comparable period in 2010. Direct salaries and related costs from the EMEA segment
increased $2.5 million, or 5.8%, to $47.4 million for the three months ended March 31, 2011 from
$44.9 million in the comparable period in 2010. While changes in foreign currency exchange rates
positively impacted revenues in the Americas and EMEA, they negatively impacted direct salaries and
related costs in the three months ended March 31, 2011, compared to the same period in 2010 by $5.7
million and $0.4 million, respectively.
In the Americas segment, as a percentage of revenues, direct salaries and related costs increased
to 63.4% for the three months ended March 31, 2011 from 61.3% in same period in 2010. This increase
of 2.1%, as a percentage of revenues, was primarily attributable to higher compensation costs of
2.4% (primarily related to lower than forecasted demand within certain clients without a
commensurate reduction in labor costs) and higher other costs of 0.1%, partially offset by lower
communication costs of 0.4%.
In the EMEA segment, as a percentage of revenues, direct salaries and related costs decreased to
74.5% for the three months ended March 31, 2011 from 75.1% in the same period of 2010. This
decrease of 0.6%, as a percentage of revenues, was primarily attributable to lower compensation
costs of 1.5% (primarily related to near-shore migration to new facilities in Egypt, Romania and
Germany) and lower billable supply costs of 0.4%, partially offset by higher communication costs of
0.4%, higher fulfillment material costs of 0.3%, higher auto and parking costs of 0.2%, higher
postage costs of 0.2% and higher other costs of 0.2%.
General and Administrative
General and administrative expenses decreased $9.6 million, or 18.2%, to $90.4 million for the
three months ended March 31, 2011 from $100.0 million for the same period in 2010. This decrease
includes a $5.1 million decrease in ICT general and administrative costs to $30.9 million for the
three months ended March 31, 2011 from $36.0 million for the period beginning February 2, 2010 (the
acquisition date) through March 31, 2010.
On a reporting segment basis, general and administrative expenses from the Americas segment
increased $9.7 million, or 18.5%, to $62.5 million for the three months ended March 31, 2011 from
$52.8 million in the comparable period in 2010. General and administrative expenses from the EMEA
segment increased $0.1 million, or 0.8%, to $15.7 million for the three months ended March 31, 2011
from $15.6 million for the comparable period in 2010. While changes in foreign currency exchange
rates positively impacted revenues in the Americas and EMEA, they negatively impacted general and
administrative expenses for the three months ended March 31, 2011 compared to the same period in
2010 by $1.8 million and $0.1 million, respectively. Corporate general and administrative expenses
decreased $19.4 million, or 61.6%, to $12.2 million for the three months ended March 31, 2011 from
$31.6 million in the same period in 2010. This decrease of $19.4 million was primarily attributable
to ICT acquisition-related costs (comprised of $12.5 million in severance costs and other costs and
$7.6 million in transaction and integration costs), partially offset by higher compensation costs
of $0.3 million, higher software maintenance of $0.2 million and higher other costs of $0.2
million.
In the Americas segment, as a percentage of revenues, general and administrative expenses decreased
to 25.4% for the three months ended March 31, 2011 from 25.5% in the comparable period in 2010.
This decrease of 0.1%, as a percentage of revenues, was primarily attributable to lower ICT
acquisition-related costs of 0.3% (severance costs) and lower compensation costs of 0.3%, partially
offset by higher facility-related costs of 0.3% and higher other costs of 0.2%.
43
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
In the EMEA segment, as a percentage of revenues, general and administrative expenses decreased to
24.7% for the three months ended March 31, 2011 from 26.1% in the comparable period in 2010. This
decrease of 1.4%, as a percentage of revenues, was primarily attributable to lower compensation
costs of 1.1% (primarily related to near-shore migration to new facilities in Egypt, Romania and
Germany), lower facility-related costs of 0.7% and lower communications costs of 0.2%, partially
offset by higher travel costs of 0.2%, higher equipment and maintenance costs of 0.2% and higher
training costs of 0.2%.
Impairment of Long-Lived Assets
During the three months ended March 31, 2011 in connection with the Third Quarter 2010 Exit Plan
within the Americas segment, we recorded an impairment charge of $0.7 million, resulting from a
change in assumptions related to the redeployment of property and equipment (none in the comparable
2010 period). The impairment charge represented the amount by which the carrying value of the
assets exceeded the estimated fair value of those assets which cannot be redeployed to other
locations.
Interest Income
Interest income was $0.3 million for the three months ended March 31, 2011, compared to $0.2
million in the same period in 2010, reflecting lower average rates earned on higher average
balances of interest bearing investments in cash and cash equivalents.
Interest (Expense)
Interest expense was $0.4 million for
the three months ended March 31, 2011, compared to $2.4
million in the same period in 2010, a decrease of $2.0 million reflecting interest and fees on
higher average levels of borrowings related to the acquisition of ICT in the comparable 2010 period
and the subsequent payoff of the $75 million Bermuda Credit Agreement and the $75 million Term Loan
in 2010.
Other Income (Expense)
Other income (expense), net, was $1.5 million for the three months ended March 31, 2011, compared
to $1.4 million in the same period in 2010. The net increase in other income (expense), net, of
$0.1 million was primarily attributable to an increase of $1.2 million in forward currency contract
losses (which were not designated as hedging instruments) and an increase of $0.1 million in other
miscellaneous expenses, net, partially offset by $1.2 million in realized and unrealized foreign
currency transaction gains, net of losses. Other income (expense) excludes the cumulative
translation effects and unrealized gains (losses) on financial derivatives that are included in
Accumulated other comprehensive income in shareholders equity in the accompanying Condensed
Consolidated Balance Sheets.
Income Taxes
Income tax expense of $0.6 million for the three months ended March 31, 2011 reflects the
recognition of a net $2.6 million tax benefit primarily related to a favorable resolution of a tax
audit, and was based upon pre-tax book income of $13.7 million. The income tax benefit of $0.5
million for the three months ended March 31, 2010 includes tax benefits recognized on losses
related to ICT acquisition-related costs, and was based upon pre-tax book loss of $8.6 million.
The effective tax rate for the three months ended March 31, 2011 was 4.2% compared to an effective
tax rate of 5.4% for the comparable 2010 period.
(Loss) from Discontinued Operations
During December 2010, we sold our Argentine operations. We accounted for this transaction in
accordance with ASC 205-20 (ASC 205-20) Discontinued Operations, and, accordingly, we
reclassified the results of operations for the three months ended March 31, 2010. The loss from
discontinued operations, net of taxes, totaled $1.3 million for the three months ended March 31,
2010.
Net Income (Loss)
As a result of the foregoing, we reported income from continuing operations for the three months
ended March 31, 2011 of $13.2 million, an increase of $21.3 million from the comparable period in
2010. This increase was
44
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
principally attributable to a $43.6 million increase in revenues, a $9.6 million decrease in
general and administrative costs, partially offset by a $32.0 million increase in direct salaries
and related costs and a $0.7 million impairment of long-lived assets. In addition to the $20.5
million increase in income from continuing operations, we experienced a $0.1 million increase in
interest income, a decrease in interest expense of $2.0 million and a decrease of $1.3 million of
loss from discontinued operations, partially offset by $0.1 million increase in other expense, net,
and an increase of $1.1 million in income taxes, resulting in net income of $13.2 million for the
three months ended March 31, 2011, an increase of $22.7 million compared to the same period in
2010.
Client Concentration
Total consolidated revenues included $34.6 million, or 11.1%, of consolidated revenues, for the
three months ended March 31, 2011 from AT&T Corporation, a major provider of communication services
for which we provide various customer support services over several distinct lines of AT&T
business. This included $33.6 million in revenue from the Americas and $1.0 million in revenue from
EMEA for the three months ended March 31, 2011.
The consolidated revenues for the comparable period as it relates to this relationship were $39.7
million, or 14.9%, of consolidated revenues, for the three months ended March 31, 2010. This
included $37.3 million in revenues from the Americas and $2.4 million in revenues from EMEA for the
three months ended March 31, 2010.
Liquidity and Capital Resources
Our primary sources of liquidity are generally cash flows generated by operating activities and
from available borrowings under our revolving credit facilities. We utilize these capital resources
to make capital expenditures associated primarily with our customer contact management services,
invest in technology applications and tools to further develop our service offerings and for
working capital and other general corporate purposes, including repurchase of our common stock in
the open market and to fund possible acquisitions. In future periods, we intend similar uses of
these funds.
On August 5, 2002, the Board of Directors authorized the Company to purchase up to 3.0 million
shares of our outstanding common stock. A total of 2.5 million shares have been repurchased under
this program since inception. The shares are purchased, from time to time, through open market
purchases or in negotiated private transactions, and the purchases are based on factors, including
but not limited to, the stock price and general market conditions. During the three months ended
March 31, 2011, we repurchased 0.3 million common shares under the 2002 repurchase program at
prices ranging between $18.24 and $18.53 per share for a total cost of $5.5 million. We may make
additional discretionary stock repurchases under this program in 2011 depending upon economic and
market conditions.
During the three months ended March 31, 2011, cash increased $20.0 million from operating
activities and $0.1 million increase in excess tax benefits from stock-based compensation. Further,
we used $6.2 million for capital expenditures, $5.5 million on the repurchase of the Companys
stock and $1.2 million to repurchase stock for minimum tax withholding on equity awards resulting
in a $10.1 million increase in available cash (including the favorable effects of international
currency exchange rates on cash of $2.9 million).
Net cash flows provided by operating activities for the three months ended March 31, 2011 were
$20.0 million, compared to $(16.8) million used for operating activities for the comparable 2010
period. The $36.8 increase in net cash flows from operating activities was due to a $22.7 million
increase in net income, $7.4 million increase in non-cash reconciling items such as impairment
losses, depreciation and amortization, deferred income taxes, stock-based compensation, unrealized
gains on financial instruments and a net increase of $6.7 million in cash flows from assets and
liabilities. The $6.7 million increase in cash flows from assets and liabilities was principally a
result of a $7.7 million decrease in other assets, a $3.4 million increase in other liabilities and
a $0.1 million increase in deferred revenue, partially offset by a $3.2 million decrease in income
taxes payable and a $1.3 million increase in receivables. The increase in cash flows from assets and liabilities primarily relates
to the timing of cash receipts and payments over the comparable period in 2010.
45
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
During 2010, we sold our Argentine operations. Cash flows from discontinued operations were as
follows (in thousands):
|
|
|
|
|
|
|
For the Three |
|
|
Months Ended |
|
|
March 31, |
|
|
2010 |
Cash (used for) operating activities of
discontinued operations |
|
$ |
(683 |
) |
Cash provided by investing activities of
discontinued operations |
|
$ |
1,010 |
|
Cash (used for) operating activities of discontinued operations represents the cash (used for) the
Argentine operations for the three months ended March 31, 2010. Cash provided by investing
activities of discontinued operations in the three months ended March 31, 2010 primarily represents
the cash on the balance sheet of the Argentine operations at the time of the ICT acquisition. We do
not expect the sale of our Argentine operations to negatively affect our future liquidity and
capital resources.
Capital expenditures, which are generally funded by cash generated from operating activities,
available cash balances and borrowings available under our credit facilities, were $6.2 million for
the three months ended March 31, 2011, compared to $6.1 million for the comparable period of 2010,
an increase of $0.1 million. In 2011, we anticipate capital expenditures in the range of $38.0
million to $42.0 million, primarily for maintenance and systems infrastructure.
On February 2, 2010, we entered into a Credit Agreement (the Credit Agreement) with a group of
lenders and KeyBank, as Lead Arranger, Sole Book Runner and Administrative Agent. The Credit
Agreement provides for a $75 million Term Loan and a $75 million revolving credit facility, which
is subject to certain borrowing limitations and includes certain customary financial and
restrictive covenants. We drew down the full $75 million Term Loan on February 2, 2010 in
connection with the acquisition of ICT on such date. As of December 31, 2010, the entire $75
million Term Loan has been repaid and is no longer available for borrowings. See Note 2,
Acquisition of ICT, and Note 11, Borrowings, of Notes to Condensed Consolidated Financial
Statements for further information. At March 31, 2011, we were in compliance with all loan
requirements of the Credit Agreement.
The $75 million revolving credit facility provided under the Credit Agreement includes a $40
million multi-currency sub-facility, a $10 million swingline sub-facility and a $5 million letter
of credit sub-facility, which may be used for general corporate purposes including strategic
acquisitions, share repurchases, working capital support, and letters of credit, subject to certain
limitations. We are not currently aware of any inability of our lenders to provide access to the
full commitment of funds that exist under the revolving credit facility, if necessary. However,
there can be no assurance that such facility will be available to us, even though it is a binding
commitment. The revolving credit facility will mature on February 1, 2013.
Borrowings under the Credit Agreement bear interest at either LIBOR or the base rate plus, in each
case, an applicable margin based on our leverage ratio. The applicable interest rate is determined
quarterly based on our leverage ratio at such time. The base rate is a rate per annum equal to the
greatest of (i) the rate of interest established by KeyBank, from time to time, as its prime
rate; (ii) the Federal Funds effective rate in effect from time to time, plus 1/2 of 1% per annum;
and (iii) the then-applicable LIBOR rate for one month interest periods, plus 1.00%. Swingline
loans bear interest only at the base rate plus the base rate margin. In addition, we are required
to pay certain customary fees, including a commitment fee of up to 0.75%, which is due quarterly in
arrears and calculated on the average unused amount of the revolving credit facility.
We paid an underwriting fee of $3.0 million for the Credit Agreement, which is deferred and
amortized over the term of the loan. The related interest expense and amortization of deferred loan
fees on the Credit Agreement of $0.3 million and $0.8 million are included in Interest expense in
the accompanying Condensed Consolidated Statement of Operations for the three months ended March
31, 2011 and 2010, respectively. The $75 million Term Loan had a weighted average interest rate of
3.95% for the three months ended March 31, 2010.
The Credit Agreement is guaranteed by all of our existing and future direct and indirect material
U.S. subsidiaries and secured by a pledge of 100% of the non-voting and 65% of the voting capital
stock of all of our direct foreign
46
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
subsidiaries and those of the guarantors. As of March 31, 2011,
we were in compliance with all loan requirements of the Credit Agreement dated February 2, 2010.
In December 2009, Sykes (Bermuda) Holdings Limited, a Bermuda exempted company (Sykes Bermuda)
which is an indirect wholly-owned subsidiary of SYKES, entered into a credit agreement with KeyBank
(the Bermuda Credit Agreement). The Bermuda Credit Agreement provided for a $75 million
short-term loan to Sykes Bermuda with a maturity date of March 31, 2010. Sykes Bermuda drew down
the full $75 million in December 2009. The Bermuda Credit Agreement required that Sykes Bermuda
and its direct subsidiaries maintain cash and cash equivalents of at least $80 million at all
times. Interest was charged on the outstanding amounts, at the option of Sykes Bermuda, at either
a Eurodollar Rate (as defined in the Bermuda Credit Agreement) or a Base Rate (as defined in the
Bermuda Credit Agreement) plus, in each case, an applicable margin specified in the Bermuda Credit
Agreement. The underwriting fee paid of $0.8 million was deferred and amortized over the term of
the loan. Sykes Bermuda repaid the entire outstanding amount plus accrued interest on March 31,
2010. The related interest expense and amortization of deferred loan fees of $1.4 million are
included in Interest expense in the accompanying Condensed Consolidated Statements of Operations
for the three months ended March 31, 2010 (none in the three months ended March 31, 2011).
At March 31, 2011, we had $199.9 million in cash and cash equivalents (excluding restricted cash of
$0.5 million), of which approximately 76.0% or $152.0 million was held in international operations,
of which $127.0 million may be subject to additional taxes if repatriated to the United States,
including withholding tax applied by the country of origin and repatriation tax on the
foreign-source income. Of the remaining $25.0 million in cash and cash equivalents held in
international operations, we expect to repatriate $25.0 million (the remaining balance of the $50.0
million 2010 determination of intent to distribute the majority of the accumulated and
undistributed earnings of an ICT foreign subsidiary). There are circumstances where we may be
unable to repatriate some of the cash and cash equivalents held by our international operations due
to country restrictions.
We believe that our current cash levels, accessible funds under our credit facilities and cash
flows generated from future operations will be adequate to meet anticipated working capital needs,
future debt repayment requirements, continued expansion objectives, funding of potential
acquisitions, anticipated levels of capital expenditures and contractual obligations for the next
twelve months and any stock repurchases. Our cash resources could be affected by various risks and
uncertainties, including but not limited to the risks described in our Annual Report on Form 10-K
for the year ended December 31, 2010.
Off-Balance Sheet Arrangements and Other
At March 31, 2011, we did not have any material commercial commitments, including guarantees or
standby repurchase obligations, or any relationships with unconsolidated entities or financial
partnerships, including entities often referred to as structured finance or special purpose
entities or variable interest entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Contractual Obligations
The following table summarizes the material changes to our contractual cash obligations as of March
31, 2011 and the effect these obligations are expected to have on liquidity and cash flow in future
periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period |
|
|
|
|
|
|
|
Less Than |
|
|
|
|
|
|
|
|
|
|
After 5 |
|
|
|
|
|
|
Total |
|
|
1 Year |
|
|
1 - 3 Years |
|
|
3 - 5 Years |
|
|
Years |
|
|
Other |
|
Purchase
obligations and
other
(1) |
|
$ |
5,213 |
|
|
$ |
2,200 |
|
|
$ |
2,949 |
|
|
$ |
64 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Purchase obligations include agreements to purchase goods or services that are
enforceable and legally binding on us and that specify all significant terms, including: fixed or
minimum quantities to be purchased; fixed, minimum or variable price provisions; and the
approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable
without penalty. |
Except for the contractual obligations mentioned above, there have not been any material
changes to the outstanding contractual obligations from the disclosure in our Annual Report on Form
10-K for the year ended December 31, 2010.
47
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires estimations and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. These estimates and assumptions are based on historical experience and
various other factors that are believed to be reasonable under the circumstances. Actual results
could differ from these estimates under different assumptions or conditions.
We believe the following accounting policies are the most critical since these policies require
significant judgment or involve complex estimations that are important to the portrayal of our
financial condition and operating results:
Recognition of Revenue
We recognize revenue in accordance with ASC 605 Revenue Recognition.
We primarily recognize revenues from services as the services are performed, which is based on
either a per minute, per call or per transaction basis, under a fully executed contractual
agreement and record reductions to revenues for contractual penalties and holdbacks for failure to
meet specified minimum service levels and other performance based contingencies. Revenue
recognition is limited to the amount that is not contingent upon delivery of any future product or
service or meeting other specified performance conditions.
Product sales, accounted for within our fulfillment services, are recognized upon shipment to the
customer and satisfaction of all obligations.
In accordance with ASC 605-25 (ASC 605-25) Revenue Recognition Multiple-Element
Arrangements, revenue from contracts with multiple-deliverables is allocated to separate units of
accounting based on their relative fair value, if the deliverables in the contract(s) meet the
criteria for such treatment. Certain fulfillment services contracts contain multiple-deliverables.
Separation criteria included whether a delivered item has value to the customer on a stand-alone
basis, whether there is objective and reliable evidence of the fair value of the undelivered items
and, if the arrangement includes a general right of return related to a delivered item, whether
delivery of the undelivered item is considered probable and in our control. Fair value is the price
of a deliverable when it is regularly sold on a stand-alone basis, which generally consists of
vendor-specific objective evidence of fair value. If there is no evidence of the fair value for a
delivered product or service, revenue is allocated first to the fair value of the undelivered
product or service and then the residual revenue is allocated to the delivered product or service.
If there is no evidence of the fair value for an undelivered product or service, the contract(s) is
accounted for as a single unit of accounting, resulting in delay of revenue recognition for the
delivered product or service until the undelivered product or service portion of the contract is
complete. We recognize revenues for delivered elements only when the fair values of undelivered
elements are known, uncertainties regarding client acceptance are resolved, and there are no
client-negotiated refund or return rights affecting the revenue recognized for delivered elements.
Once we determine the allocation of revenues between deliverable elements, there are no further
changes in the revenue allocation. If the separation criteria are met, revenues from these
services is recognized as the services are performed under a fully executed contractual agreement.
If the separation criteria are not met because there is insufficient evidence to determine fair
value of one of the deliverables, all of the services are accounted for as a single combined unit
of accounting. For these deliverables with insufficient evidence to determine fair value, revenue
is recognized on the proportional performance method using the straight-line basis over the
contract period, or the actual number of operational seats used to serve the client, as
appropriate. As of March 31, 2011, our fulfillment contracts with multiple-deliverables met the
separation criteria as outlined in ASC 605-25 and the revenue was accounted for accordingly. We
have no other contracts that contain multiple-deliverables as of March 31, 2011.
In October 2009, the Financial Accounting Standards Board amended the accounting standards for
certain multiple-deliverable revenue arrangements. We adopted this guidance on a prospective basis
for applicable transactions originated or materially modified since January 1, 2011, the adoption
date. Since there were no such transactions executed or materially modified since adoption on
January 1, 2011, there was no impact on our financial condition, results of operations and cash
flows. The amended standard:
48
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
|
|
|
updates guidance on whether multiple deliverables exist, how the deliverables in an
arrangement should be separated, and how the consideration should be allocated; |
|
|
|
|
requires an entity to allocate revenue in an arrangement using the best estimated
selling price of deliverables if a vendor does not have vendor-specific objective evidence
of selling price or third-party evidence of selling price; and |
|
|
|
|
eliminates the use of the residual method and requires an entity to allocate revenue
using the relative selling price method. |
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts, $4.0 million as of March 31, 2011 or 1.6% of trade
account receivables, for estimated losses arising from the inability of our customers to make
required payments. Our estimate is based on factors surrounding the credit risk of certain clients,
historical collection experience and a review of the current status of trade accounts receivable.
It is reasonably possible that our estimate of the allowance for doubtful accounts will change if
the financial condition of our customers were to deteriorate, resulting in a reduced ability to
make payments.
Income Taxes
We reduce deferred tax assets by a valuation allowance if, based on the weight of available
evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than
not that some portion or all of such deferred tax assets will not be realized. The valuation
allowance for a particular tax jurisdiction is allocated between current and noncurrent deferred
tax assets for that jurisdiction on a pro rata basis. Available evidence which is considered in
determining the amount of valuation allowance required includes, but is not limited to, our
estimate of future taxable income and any applicable tax-planning strategies.
At December 31, 2010, we determined that a total valuation allowance of $60.1 million was necessary
to reduce U.S. deferred tax assets by $6.2 million and foreign deferred tax assets by $53.9
million, where it was more likely than not that some portion or all of such deferred tax assets
will not be realized. The recoverability of the remaining net deferred tax asset of $18.3 million
at December 31, 2010 is dependent upon future profitability within each tax jurisdiction. As of
March 31, 2011, based on our estimates of future taxable income and any applicable tax-planning
strategies within various tax jurisdictions, we believe that it is more likely than not that the
remaining net deferred tax assets will be realized.
Generally, earnings associated with the investments in our subsidiaries are considered to be
permanently invested and provisions for income taxes on those earnings or translation adjustments
are not recorded. However, we changed our intent to distribute current earnings from various
foreign operations to their foreign parents to take advantage of the December 2010 Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Tax Relief Act), which
includes the extension until December 31, 2011 of Internal Revenue Code Section 954(c)(6). The Tax
Relief Act permits continued tax deferral on such distributions that would otherwise be taxable
immediately in the United States. While the distributions are not taxable in the United States,
related foreign withholding taxes have been accrued in the Condensed Consolidated Balance Sheets.
In addition, the U.S. Department of the Treasury released the General Explanations of the
Administrations Fiscal Year 2012 Revenue Proposals in February 2011. These proposals represent a
significant shift in international tax policy, which may materially impact U.S. taxation of
international earnings. We continue to monitor these proposals and are currently evaluating their
potential impact on our financial condition, results of operations, and cash flows. Determination
of any unrecognized deferred tax liability for temporary differences related to investments in
foreign subsidiaries that are essentially permanent in nature is not practicable.
We evaluate tax positions that have been taken or are expected to be taken in our tax returns, and
record a liability for uncertain tax positions in accordance with ASC 740 (ASC 740) Income
Taxes. The calculation of our tax liabilities involves dealing with uncertainties in the
application of complex tax regulations. ASC 740 contains a two-step approach to recognizing and
measuring uncertain tax positions. First, tax positions are recognized if the weight of available
evidence indicates that it is more likely than not that the position will be sustained upon
examination, including resolution of related appeals or litigation processes, if any. Second, the
tax position is measured as the largest amount of tax benefit that has a greater than 50%
likelihood of being realized upon settlement. We reevaluate these uncertain tax positions on a
quarterly basis. This evaluation is based on factors including, but not limited to,
49
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and
new audit activity. Such a change in recognition or measurement would result in the recognition of
a tax benefit or an additional charge to the tax provision. We had $18.6 million and $21.0 million
of unrecognized tax benefits as of March 31, 2011 and December 31, 2010, respectively.
Our provision for income taxes is subject to volatility and is impacted by the distribution of earnings in the
various domestic and international jurisdictions in which we operate. Our effective tax rate could be impacted
by earnings being either proportionally lower or higher in foreign countries where we have tax rates lower than
the U.S. tax rates. In addition, we have been granted tax holidays in several foreign tax jurisdictions, which
have various expiration dates ranging from 2011 through 2018. If we are unable to renew a tax holiday in any of
these jurisdictions, our effective tax rate could be adversely impacted. In some cases, the tax holidays expire
without possibility of renewal. In other cases, we expect to renew these tax holidays, but there are no assurances
from the respective foreign governments that they will permit a renewal. Our effective tax rate could also be affected
by several additional factors, including changes in the valuation of our deferred tax assets or liabilities,
changing legislation, regulations, and court interpretations that impact tax law in multiple tax jurisdictions
in which we operate, as well as new requirements, pronouncements and rulings of certain tax, regulatory and accounting
organizations.
Impairment of Goodwill, Intangibles and Other Long-Lived Assets
We review long-lived assets, which had a carrying value of $281.7 million as of March 31, 2011,
including goodwill, intangibles and property and equipment for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be recoverable and at
least annually for impairment testing of goodwill. An asset is considered to be impaired when the
carrying amount exceeds the fair value. Upon determination that the carrying value of the asset is
impaired, we would record an impairment charge, or loss, to reduce the asset to its fair value.
Future adverse changes in market conditions or poor operating results of the underlying investment
could result in losses or an inability to recover the carrying value of the investment and,
therefore, might require an impairment charge in the future.
New Accounting Standards
Unless we need to clarify a point to readers, we will refrain from citing specific section
references when discussing the application of accounting principles or addressing new or pending
accounting rule changes. There are no recently issued accounting standards that are expected to
have a material effect on our financial condition, results of operations or cash flows.
U.S. Healthcare Reform Acts
In March 2010, the President of the United States signed into law comprehensive health care reform
legislation under the Patient Protection and Affordable Care Act and the Health Care and Education
Reconciliation Act (the Acts). The Acts contain provisions that could materially impact the
Companys healthcare costs in the future, thus adversely affecting the Companys profitability. We
are currently evaluating the potential impact of the Acts, if any, on our financial condition,
results of operations and cash flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
Our earnings and cash flows are subject to fluctuations due to changes in currency exchange rates.
We are exposed to foreign currency exchange rate fluctuations when subsidiaries with functional
currencies other than the U.S. Dollar (USD) are translated into the Companys USD consolidated
financial statements. As exchange rates vary, those results, when translated, may vary from
expectations and adversely impact profitability. The cumulative translation effects for
subsidiaries using functional currencies other than the U.S. Dollar are included in Accumulated
other comprehensive income (loss) in shareholders equity. Movements in non-U.S. Dollar currency
exchange rates may negatively or positively affect our competitive position, as exchange rate
changes may affect business practices and/or pricing strategies of non-U.S. based competitors.
We employ a foreign currency risk management program that periodically utilizes derivative
instruments to protect against unanticipated fluctuations in earnings and cash flows caused by
volatility in foreign currency exchange (FX) rates. Option and forward hedge contracts are used
to hedge intercompany receivables and payables, and other transactions initiated in the United
States, that are denominated in a foreign currency. Additionally, we may employ FX contracts to
hedge net investments in foreign operations.
We serve a number of U.S.-based clients using customer contact management center capacity in the
Philippines, Canada and Costa Rica, which are within our Americas segment. Although the contracts
with these clients are priced in U.S. Dollars, a substantial portion of the costs incurred to
render services under these contracts are denominated in Philippine Pesos (PHP), the Canadian
Dollar (CAD) and the Costa Rican Colones, which represent FX exposures.
In order to hedge a portion of our anticipated cash flow requirements denominated in PHP and CAD,
we had outstanding forward contracts and options as of March 31, 2011 with counterparties through
December 2011 at fixed prices of $102.1 million U.S. dollars. As of March 31, 2011, we had net
total derivative assets associated with these
50
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
contracts of $5.0 million, which will settle within the next 12 months. The fair value of these
derivative instruments as of March 31, 2011 is presented in Note 8, Financial Derivatives, of
Notes to Condensed Consolidated Financial Statements. If the U.S. dollar was to weaken against
the PHP and CAD by 10% from current period-end levels, we would incur a loss of approximately $5.8
million on the underlying exposures of the derivative instruments. However, this loss would be
mitigated by corresponding gains on the underlying exposures.
We also entered into forward exchange contracts that are not designated as hedges. The purpose of
these derivative instruments is to protect against FX volatility pertaining to intercompany
receivables and payables, and other assets and liabilities that are denominated in currencies other
than our subsidiaries functional currencies. As of March 31, 2011, the fair value of these
derivatives was a net payable of $1.7 million. The potential loss in fair value at March 31, 2011,
for these contracts resulting from a hypothetical 10% adverse change in the foreign currency
exchange rates is approximately $4.3 million. However, this loss would be mitigated by
corresponding gains on the underlying exposures.
We evaluate the credit quality of potential counterparties to derivative transactions and only
enter into contracts with those considered to have minimal credit risk. We periodically monitor
changes to counterparty credit quality as well as our concentration of credit exposure to
individual counterparties.
We do not use derivative financial instruments for speculative trading purposes, nor do we hedge
our foreign currency exposure in a manner that entirely offsets the effects of changes in foreign
exchange rates.
As a general rule, we do not use financial instruments to hedge local currency denominated
operating expenses in countries where a natural hedge exists. For example, in many countries,
revenue from the local currency services substantially offsets the local currency denominated
operating expenses.
Interest Rate Risk
Our exposure to interest rate risk results from variable debt outstanding under the revolving
credit facility under our Credit Agreement. We pay interest on outstanding borrowings at interest
rates that fluctuate based upon changes in various base rates. During the three months ended March
31, 2011, we had no debt outstanding under the revolving credit facility.
We have not historically used derivative instruments to manage exposure to changes in interest
rates.
Fluctuations in Quarterly Results
For the year ended December 31, 2010, quarterly revenues as a percentage of total consolidated
annual revenues were approximately 23%, 25%, 25% and 27%, respectively, for each of the respective
quarters of the year. We have experienced and anticipate that in the future we will experience
variations in quarterly revenues. The variations are due to the timing of new contracts and renewal
of existing contracts, the timing and frequency of client spending for customer contact management
services, non-U.S. currency fluctuations, and the seasonal pattern of customer contact management
support and fulfillment services.
Item 4. Controls and Procedures
As of March 31, 2011, under the direction of our Chief Executive Officer and Chief Financial
Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rule 13a 15(e) under the Securities Exchange Act of 1934, as amended.
Our disclosure controls and procedures are designed to provide reasonable assurance that the
information required to be disclosed in our SEC reports is recorded, processed, summarized and
reported within the time period specified by the SECs rules and forms, and is accumulated and
communicated to management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure. We concluded that, as of March
31, 2011, our disclosure controls and procedures were effective at the reasonable assurance level.
There were no changes in our internal controls over financial reporting during the quarter ended
March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
51
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
We have previously disclosed three pending matters involving regulatory sanctions assessed against
our Spanish subsidiary. All three matters relate to the alleged inappropriate acquisition of
personal information in connection with two outbound client contracts. In connection with the
appeal of one of these claims, we issued a bank guarantee, which is included as restricted cash of
$0.4 million and $0.4 million in Deferred charges and other assets in the accompanying Condensed
Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010, respectively. Based upon
the opinion of legal counsel regarding the likely outcome of these three matters, we accrued a
liability in the amount of $1.3 million in accordance with the Financial Accounting Standards
Boards Accounting Standards Codification 450 Contingencies because we believed that a loss was
probable and the amount of the loss could be reasonably estimated. In the quarter ended December
31, 2010, the Spanish Supreme Court ruled in our favor in one of the three subject claims.
Accordingly, we reversed the accrual in the amount of $0.5 million related to that particular
claim. The accrued liability included in Other accrued expenses and current liabilities in the
accompanying Condensed Consolidated Balance Sheets was $0.8 million and $0.8 million as of March
31, 2011 and December 31, 2010, respectively. One of the other two claims has been finally decided
against the Company on procedural grounds, and the final claim remains on appeal to the Spanish
Supreme Court.
From time to time, we are involved in legal actions arising in the ordinary course of business.
With respect to these matters, we believe that we have adequate legal defenses and/or provided
adequate accruals for related costs such that the ultimate outcome will not have a material adverse
effect on our future financial position or results of operations.
Item 1A. Risk Factors
For risk factors, see Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended
December 31, 2010 filed on March 8, 2011. Our risk factors have not changed materially since
December 31, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Below is a summary of stock repurchases for the three months ended March 31, 2011 (in thousands,
except average price per share). See Note 14, Earnings Per Share, of Notes to Condensed
Consolidated Financial Statements for information regarding our stock repurchase program.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Number |
|
|
Total |
|
Average |
|
Shares Purchased |
|
of Shares That May |
|
|
Number of |
|
Price |
|
as Part of Publicly |
|
Yet Be Purchased |
|
|
Shares |
|
Paid Per |
|
Announced Plans |
|
Under Plans or |
Period |
|
Purchased(1) |
|
Share |
|
or Programs |
|
Programs |
|
January 1, 2011 - January 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
798 |
|
February 1, 2011 - February 28, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
798 |
|
March 1, 2011 - March 31, 2011 |
|
|
300 |
|
|
$ |
18.37 |
|
|
|
300 |
|
|
|
498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
300 |
|
|
|
|
|
|
|
300 |
|
|
|
498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
All shares purchased as part of a repurchase plan publicly announced on
August 5, 2002. Total number of shares approved for repurchase under the plan was 3.0 million
with no expiration date. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Removed and Reserved
Item 5. Other Information
None.
52
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
Item 6. Exhibits
The following documents are filed as an exhibit to this Report:
|
|
|
15
|
|
Awareness letter. |
|
31.1
|
|
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a). |
|
31.2
|
|
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a). |
|
32.1
|
|
Certification of Chief Executive Officer, pursuant to 18 U.S.C. §1350. |
|
32.2
|
|
Certification of Chief Financial Officer, pursuant to 18 U.S.C. §1350. |
53
Sykes
Enterprises, Incorporated and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2011
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
SYKES ENTERPRISES, INCORPORATED
(Registrant)
|
|
Date: May 5, 2011 |
By: |
/s/ W. Michael Kipphut
|
|
|
W. Michael Kipphut |
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
54
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
|
15
|
|
Awareness letter. |
|
|
|
31.1
|
|
Certification of Chief Executive Officer, pursuant to Rule 13a-14(a). |
|
|
|
31.2
|
|
Certification of Chief Financial Officer, pursuant to Rule 13a-14(a). |
|
|
|
32.1
|
|
Certification of Chief Executive Officer, pursuant to 18 U.S.C. §1350. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer, pursuant to 18 U.S.C. §1350. |